A finance expert has hit back at a call by a KiwiSaver provider to lower the minimum contribution rate to 1 per cent warning it could exacerbate the retirement saving short-fall.

AMP chief executive Blair Vernon has called for the minimum contribution rate to be dropped from 3 per cent to 1 per cent or 2 per cent on the back of its research on non-contributors which found many were on a low income or not in paid employment.

Non-contributors are signed up to KiwiSaver but do not put any money into their accounts.

Of the 500 non-contributing members AMP surveyed 80 per cent had a personal income of less than $50,000 and half (48 per cent) had a household income of below $50,000 - well below the national average of $98,000 for households.

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It also found 49 per cent were not in paid employment.

Vernon said there needed to be lower and more graduated entry points for people to begin contributing to KiwiSaver.

"Three per cent is just too tough."

But Aaron Gilbert, an associate professor in the finance department at AUT University, said while lowering the contribution rate appeared attractive on the surface, it had serious flaws.

Aaron Gilbert, associate professor at AUT's business school. Photo/Supplied.
Aaron Gilbert, associate professor at AUT's business school. Photo/Supplied.

"At the current minimum of 3 per cent, many people will likely have a significant gap in their retirement savings.

"Reducing the contribution rate will exacerbate this problem."

On top of that Gilbert said KiwiSaver fees would also be a greater burden for someone with a low KiwiSaver balance and smaller contributions.

"Additionally, there is an ongoing debate about the level of KiwiSaver management fees.

"These appear to be high, and the proportional burden will be greater on someone with a low KiwiSaver balance and small yearly contributions."

Gilbert doubted that dropping the contribution rate would address the issues for non-contributors.

"While obviously beneficial for KiwiSaver providers, it is doubtful the needs of low income and unemployed New Zealanders would be addressed under this plan."

Gilbert said a better approach could be to make the employer contribution component compulsory which would benefit all eligible workers.

Currently employers only have to contribute if the worker contributes to KiwiSaver.