KiwiSaver remains best saving option for most, says ISI

As expected the changes signalled by the Government include halving the Government-paid Member Tax Credit from July 1, making employer contributions subject to Employer Superannuation Contribution Tax (ESCT) from April 1, 2012, and increasing minimum contribution levels from 2% to 3% for both employees and employers from April 1, 2013.

The ISI said some changes to the scheme were inevitable given the problems the country faces in the wake of the Christchurch earthquakes, but that "it remains the best long term savings vehicle for most New Zealanders."

Analysis carried out by the ISI shows that for a 25 year old earning the median income of $48,000, the overall impact of the changes would see their pot of savings at retirement increase by $35,000 (in current dollar terms) if invested in a typical default fund. The combined effect of the reduction of the Members Tax Credit and ESCT would take $40,000 out of their final account but the increase in the contribution level to 3% by both themselves and their employer adds back another $75,000.

In this scenario, the impact of raising the employee contribution from 2% to 3% would see the employee's contributions raised by $9.20 a week.