$400m more a year for KiwiSaver

Carmel Fisher said the increase was a step in the right direction for savers. Photo / Doug Sherring

Increase in minimum employee and employer contribution from 2 per cent to 3 per cent will boost retirement scheme fund.

Between $300 million to $400 million more a year could be pumped into the KiwiSaver scheme with the latest contribution increases, says the country's largest provider.

As of yesterday the minimum employer and employee contribution rates for the retirement savings scheme increased from 2 per cent to 3 per cent.

Around 2.1 million New Zealanders have a combined $15.4 billion in KiwiSaver. The most recent Inland Revenue figures for the year to June 2012 show 59 per cent of employees were contributing at 2 per cent and 91 per cent of employers were paying the minimum level.

David Boyle, general manager at ANZ Wealth Funds Management, which has around 25 per cent market share, said for someone earning about $30,000 a year the change would increase their annual contribution by about $675 once the increased tax credit and investments returns were included.

"This additional $675 for an 'average' individual member would translate to approximately $300 to $400 million in additional total KiwiSaver funds under management over one year, based on the numbers in our scheme, representing a quarter of the market."

Boyle said the increase to 3 per cent would increase the number of people able to claim the full tax credit.

Under the 2 per cent threshold savers had to be earning over $52,000 a year to get the full credit, which is $521. Now that threshold will be around $37,000.

The tax credits are paid out based on how much a saver contributes in the July 1 to June 30 year. Boyle said savers could consider topping up their contributions before June 30 to get the maximum tax credit.

The increase also raises the prospect that some savers may be going on a contribution holiday if they can't afford to take a hit on their take home pay.

Boyle said those who can't afford it could consider going on a holiday but then still contributing at 2 per cent. They will miss out on the employer contribution but will still get some of the member tax credit.

Employers and Manufacturers Association spokesman David Lowe said the KiwiSaver increase would be one of the factors affecting how employers paid their staff this year.

"I think the total cost of the employees' pay is a factor that will sit in the mix. I wouldn't be so confident to say it's definitely going to have an $400 million more a year for scheme effect on pay increases. It depends on how the business is going. It depends on the skills the person has. It's a balancing act and it will be in the mix."

Carmel Fisher, principal at Fisher Funds, said the increase was a step in the right direction for savers and would help New Zealand's superannuation contribution rates catch up to Australia where the current rate is 9 per cent.

"Hopefully there can be more incremental increases in the future."

Fisher said the extra money coming in could have an impact on the New Zealand sharemarket but it would depend on the relative attractiveness of the New Zealand market.

"Just because they [KiwiSaver providers] get increased money coming in doesn't mean there will be a change in the way it is allocated."

Chris Douglas, head of research at Morningstar, which estimates around 9.8 per cent of KiwiSaver is invested in the New Zealand sharemarket, said the increase would be positive for the market but not a gamechanger.

"The 2 per cent increase seems like a decent amount of money but KiwiSaver is still quite a small part of the market. At this stage it's not enough to shift the market."

NZX chief executive Tim Bennett said it was unclear what the short-term impact of the increase from 2 to 3 per cent would be.