Labour's proposals to allow the Reserve Bank to adjust KiwiSaver contributions rather than interest rates to control inflation could hurt savers and see debt repayment delayed until retirement, KiwiSaver experts warn.

The Labour Party this morning announce proposals to change New Zealand's monetary policy tools by introducing a variable savings rate for KiwiSaver.

The policy would require the Reserve Bank to use changes to the rate of people's KiwiSaver contributions rather than interest rates to control inflation while taking pressure off the over-valued kiwi dollar.

Labour would also make KiwiSaver compulsory and increase contributions from the current 6 per cent combined employee and employer contribution to 9 per cent over time.


Labour finance spokesman David Parker said the proposal would mean that instead of people paying more interest on their mortgage, a similar amount of extra savings would go into KiwiSaver.

But Chris Douglas, co-head of Australasian research at Morningstar, said the policy had the potential to penalise savers.

"Obviously low interest rates are great for borrowers but it does penalise savers."

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Douglas said it would help people who wanted to borrow a lot to buy a house.

"But what happens when they reach 65? Will they just have a huge mortgage which they will have to pay off using their savings?"

Studies on Australia's compulsory superannuation saving showed many were retiring with more debt, he said.

"Rather than using their retirement savings to pay for their retirement lifestyle it is being used to pay off debt."

Douglas was in favour of increasing the contribution rates from 6 per cent to 9 per cent.

"I think that is great. I'm sure the industry would like that."

But he warned it was likely to come out of future pay rises.

"It's really the employee that's stumping up with the full amount."

Michael Littlewood, co-director at Auckland University's retirement policy and research centre, said the policy was based on the underlying assumption that New Zealanders needed to be forced to save for retirement.

"The policy rests on compulsion and that is flawed - there is no evidence New Zealanders are under-saving for retirement."

Littlewood said if Kiwis were forced to save through KiwiSaver they would reduce their savings elsewhere.

He said using KiwiSaver to fight inflation was a "sticking plaster kind of solution" and would add another objective to the retirement savings scheme.

"KiwiSaver was supposed to be a nudge into retirement savings, then it became a tax incentive...then a housing plan and now suddenly we think KiwiSaver can be used to fight inflation. All of a sudden KiwiSaver has different drivers. The risk is you fail at all of them."

See a Labour -provided fact sheet about its new policy here:

But Labour's proposal was given support by KiwiSaver industry body the Financial Services Council.

Chief executive Peter Neilson said New Zealand did need more macro-economic tools to control inflation and being able to adjust KiwiSaver could also result in contribution rates going down if the economy was tanking, giving people more cash in the hand.

Neilson said despite the perception that his industry would gain from making KiwiSaver compulsory there were mixed views among the industry about it.

However surveys it had conducted showed around 60 per cent of the population would potentially support compulsory KiwiSaver.

He welcomed the proposed increase in contribution rates and said 9 per cent should be enough to provide for a comfortable retirement as long as New Zealand Superannuation was not cut, the default for KiwiSaver account was shifted from conservative to balanced and tax changes were made to the savings scheme.