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Coffee cup cure for economy

Saving the cost of a cup of coffee every week for 10 years could provide a much-needed boost to the New Zealand economy, the Financial Services Council says.

Friday, January 4th 2013, 1:38PM 3 Comments

by Susan Edmunds

It has released new data from Infometrics that shows that if 80% of the workforce were signed up to KiwiSaver, contributing twice as much as they are now, the amount of money saved in the scheme’s funds would rise to $731 billion by 2066. It is $13 billion today.

FSC chief executive Peter Neilson said lifting the rate of saving to 5% of an employee’s income, matched by 5% from their employer, would be a huge boost to the Kiwi economy.

The projection assumes new KiwiSavers increase their savings rate by 1% a year (0.5% of their income, matched by 0.5% from their employers) until they get to 10%, at which point existing KiwiSavers would increase their contributions to the same level.

That amount of saving would make the economy more resilient during recessions, provide new jobs and improve productivity, the lobby group said. It would also inject an extra $52 billion into the New Zealand stock market by 2066.

Up to an extra $3 billion would be available to invest in unlisted companies, the report estimated.

People entering the workforce in 2013 would finish their working careers with a pension twice the size of what they would currently be entitled to from NZ Super.

Neilson said the current average contribution of 5% of income was below world standard and short of what would be needed to provide a comfortable retirement. Australian employers pay 9% and that will increase to 12% by 2020.

Neilson said it had been calculated the 0.5% needed from someone starting work on the median wage equated to saving the cost of a cup of coffee a week extra each year for 10 years.

Each year of additional savings, with compound interest, would see KiwiSaver contributions multiply many times over to deliver a comfortable retirement in 40 or 50 years’ time.

Neilson said he had not had any official response from the Government yet but he expected the debate to continue all year. “It will be an election issue.”

He said there had been a mixed response from the public to the suggestions. “Some say it’s a bit expensive so we won’t do it.”

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Comments from our readers

On 4 January 2013 at 2:30 pm brent sheather said:
Funny how all these cures for the economy inevitably mean huge profits for the finance sector lol..and here is a forecast..there are going to be 000s of unhappy
KiwiSavers who retire in 10 yrs and find they can't get their money out..they are forced to buy a prohibitively expensive annuity.
On 6 January 2013 at 5:29 pm Russell Hutchinson said:
Increasing savings in the short term subtracts from the economy, and it is only in the medium to long term that it adds to it through investment.

That will be dependent on the investment choices made by KiwiSavers and their fund managers - and since right now their choice is mainly cash - there are plenty of ways the hoped-for boost could be elusive.

Although I'm in favour of an increase in the medium term. I wouldn't apply one right now, just when growth is so weak.
On 7 January 2013 at 10:11 am John Berry said:
Russell, I agree. There is no evidence that the $13 billion currently in KiwiSaver has boosted jobs or productivity. Savings are not providing risk capital for SMEs or growth ventures - I am not aware of KiwiSaver options that do this (other than Milford who have made a couple of unlisted investments). The very popular cash default funds are providing banks with an alternative source of funding - which no doubt is helping property lending...
KiwiSaver fund managers first need to follow Milford's lead and find ways to provide risk capital. Once we have evidence of a boost to jobs, growth and productivity we can then talk about increasing the employer/employee contribution rates.....

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