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Fund mangers disappointed with KiwiSaver changes

Fund managers are disappointed at the government's well-flagged tinkering with the KiwiSaver scheme but are relieved the changes will still mean KiwiSaver accounts growing over time.

Thursday, May 19th 2011, 4:03PM

by Jenny Ruth

"The most important thing about this is they're upping the (total) contribution over time," says Sam Stubbs, chief executive of Tower Investments.

 

"The only thing that surprised me was they're taking away the incentives a year earlier than they're upping the (employee and employer) contribution rates," Stubbs says.

The big question is whether the government is done tinkering with KiwiSaver: "We just want certainty. Every time there's a change, it costs ups $500,000" per KiwiSaver provider in administration costs.

John Body, managing director of ANZ Wealth, which owns the largest KiwiSaver provider OnePath, says KiwiSaver is still the best vehicle for saving towards retirement.

"These changes do not derail the fundamental benefits and design of the scheme," Body says.

An AMP spokesperson says that company is encouraged "the overall level of saving in Kiwisaver will be generally maintained - although the balance between government, member and employer contributions will change."

Carmel Fisher at Fisher Funds Management says she was pleased the changes had been so well flagged and that finance minister Bill English has said he's committed to Kiwisaver.

"There are still enough incentives around Kiwisaver to make it a very viable savings platform."

Fisher also welcomed the governments plans to partly float its three electricity companies, Solid Energy and to reduce its stake in Air New Zealand.

"With so much money being thrown at Kiwisaver providers, a lot of that money is likely to find its way back into those SOEs," Fisher says.

The main changes to the scheme are:

·         the government's member tax credit will halve to 50 cents for every dollar a Kiwisaver contributes up to a maximum $521 a year from the year ending June 2012

·         the tax-free status of employer contributions will be removed from April 1, 2012

·         the minimum employee contributions will rise from 2% to 3% of earnings from April 1, 2013

·         compulsory employer contributions will rise from 2% to 3% of the employee's earnings from April 1, 2013.

 

The government's kick-start $1,000 contribution to all new KiwiSavers remains. The government estimates the changes will save it $2.6 billion over four years.

Paul Dunne, senior tax partner at KPMG says taking away the tax-free status of employer contributions may be less visible to KiwiSavers but will eat into those contributions. However, the increasing rate of employer contributions over time will probably offset that effect in most contributors' eyes.

"Overall, it's very much as had been foreshadowed," Dunne says. Collectively, it's a good thing if, as the government said, it puts KiwiSaver on a sustainable footing."

« Budget 2011: Key KiwiSaver changesKiwiSaver mismatch a 'huge challenge' for advisers »

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 5.50 - - -
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China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 ▼3.85 ▼3.95 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.55 2.65 2.79
Kainga Ora 4.43 3.29 3.39 3.85
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac ▼3.39 3.45 ▼2.99 ▼3.35
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Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.10 3.19 3.12

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