KiwiSaver – opportunity, threat or both?

What does Kiwisaver mean from an industry perspective? The scheme’s evolution presents several challenges - we discuss four of these below:

1 – The effect of higher KiwiSaver contribution rates

Current minimum contribution rates for KiwiSaver are 3% from the employer and 3% from the employee.  Over time these are likely to increase -  Labour’s David Parker has suggested employee contributions of 9%. While that seems outrageously high, don’t be surprised when future governments phase this in over a long period.  Nine perscent is not an unrealistic end game.  Australia’s compulsory employer contributions are 9.25% which are increasing to 12% by 2019.  In Germany employers and employees must each contribute 9.75%.

Not only are KiwiSaver contribution rates likely to be higher over time, but scheme membership is also likely to become compulsory.  The unintended consequence of this is that as contribution rates (and KiwiSaver balances) go up, savers may feel less inclined to accumulate the same assets outside of KiwiSaver.  If they access shares, bonds and broader managed funds through KiwiSaver, then these may not be high on a saver’s agenda outside of KiwiSaver.