KEY POINTS:
Fund managers were jubilant yesterday over news of substantial new incentives for people to join the KiwiSaver workplace savings scheme which will pour millions if not billions into the industry.
Vance Arkinstall, chief executive of the Investment, Savings and Insurance Association, said the changes were "outstanding news" not
only for the savings industry but for the scheme itself.
Arkinstall said the previously announced features including a $1000 kick-start combined with the tax credits for employee contributions and phased-in compulsory contributions by employers announced yesterday would ensure the success of the scheme.
"KiwiSaver has become clearly the most compelling investment option available," said Arkinstall.
"There is now no doubt that the proposition offered by KiwiSaver is so attractive that virtually all New Zealanders must consider joining. Even employees not changing jobs should consider opting in."
Roger Perry, savings and investment general manager at the country's largest fund manager, AMP, was similarly enthused.
"Why wouldn't you be in it? It's a fantastic opportunity."
Perry said the beefed up contribution plan would enable individuals to save more while a reduction in the amount of tax KiwiSaver providers must pay on investment returns, also announced yesterday, would accelerate the accumulation of savings.
"It's more and faster basically."
Under its original estimates, the Government believed about 30 per cent of working age people would be active participants in the scheme after 10 years, however Cullen yesterday said the changes would probably raise that to 50 per cent.
Arkinstall said it was too early to estimate how much money was likely to flow into the industry under the revised KiwiSaver scheme but it would be significant.
At present the country has about $56 billion worth of workplace retirement savings. Australia, which adopted compulsory workplace super in the early 1990s, now has almost $1 trillion.
However, Business New Zealand chief executive Phil O'Reilly said the changes announced yesterday "will be treated very negatively by employers".
Despite the fact that some of the costs of compulsory employer contributions would be offset by a tax credit it would still be a significant additional cost for many employers and one which had been introduced with little consultation or notice.
While employers might have felt comfortable voluntarily co-contributing to employees' retirement savings under the scheme, "I think they'll be substantially less positive about being forced to contribute".
He believed employer support for the scheme was critical for its success.
"Really, I think the Government is testing that support very severely when they say: 'By the way, on top of all of those things we'd like you to do, compliance etc, we're now going to put in a compulsory increase in your costs."'
But New Zealand Exchange chief executive Mark Weldon said the changes were "strongly encouraging".
Top proposition
* Fund managers have welcomed changes to the KiwiSaver scheme.
* Tax breaks on employee contributions and compulsory employer contributions make the scheme a compelling proposition, they say.
* The industry is now expecting a substantial boost from the scheme.
* Business NZ says employers may resent being forced to contribute.