John Key has announced that Kiwisaver would be slashed along with National’s tax cuts for the rich (and they are tax cuts for the rich, while most people would get less than under Labour’s plan, under National’s plan by 2011 around half a billion a year more than under Labour’s plan would be going to the 7% of tax payers on incomes over $80,000).
National would reduce employee and employer contributions to 2% each. Anyone on an income below $52,000 won’t be contributing more than $20 a week at 2%, so the Government won’t have to give them the full $20 matching contribution. Currently, everyone earning over $26,000 gets the full $20 a week. They would also abolish the tax credit for employers. For most employers, that would not cost them any money because they are already saving by only being required to make 2%, not 4%, contributions.
So, what does this mean for you? Bad news for your savings. Take a worker on the average wage of $45,000 with 40 years of working life ahead of her. She would lose about $90,000 in today’s money from the reduced employer contributions alone. She would lose another $10,000 from lost government contributions. So far she’s $100,000 in the red.
Oh, and your employer contributions would be coming out of your wages too (while your boss pockets the tax reduction). National would change the law that prevents employers taking employer contributions out of your wages. So, say our worker can say bye to another $90,000 in lost wages and lost interest on that.
All up, our 25 year old worker stands to loss about $190,000 by the time she retires as a result of National’s changes. But why stick with a fictional worker? Let’s all work out what we stand to lose. Work out 4% of your income (2% from lost employer contributions, 2% from having your wages reduced to cover the remaining 2% from your boss), if you earn under $52K a year add the sum of $1040 minus 2% of your income(lost government payments), multiply that 4% by 3.5% per year until you retire (average pay increase) and then add compounding interest of 3%each year (average net real return).
Or, for a more rough and ready estimate, calculate your Kiwisaver nest egg here, then halve it. That’s what voting National would cost you. And remember, unless you’re on a high income, you get little or no additional tax cut in return.