Budget 2011: KiwiSaver cuts put more burden on Kiwi companies

UPDATED: Managing director of Fisher Funds Carmel Fisher said the budget held "no real surprises," but really liked the tie-in with SOE privatisations.

"It's what they've been telling us for the last week. It's consistent with their long-term strategy, and giving people a couple of years to adapt to the changes is a good move," she said.

She said the increased minimum contribution levels - from 2% to 3% - may see more people take contribution holidays, but the new minimum level was substantially below that across the ditch.

"A 1% increase doesn't sound like a lot, to put it into perspective. Australians are putting in 12%, and they increased it from 9% to 12% without much kicking and screaming."

Ms Fisher said the announced part-float of SOEs would also give fund managers the option of investing in the "closest thing we have to blue chip companies."

Finance Minister Bill English has simultaneously halved the government’s $1.2 billion annual contribution to KiwiSaver and raised minimum levels of employer and employee contribution to make up the difference.

“At present, KiwiSaver’s contribution to national savings is ambiguous," Mr English said during his budget address. "It helps individuals to save for their retirement."

“But it means the government is borrowing, mostly from foreigners, to contribute to private savings. This does not lift national savings. A better approach is to have New Zealanders actually saving for their future.”

Key changes announced today included raising minimum contributions by employers and employees from 2% to 3%; ending tax-free employer contributions; and halving the employee tax credit to an annual cap of $521.

The rise to a 3% minimum contribution takes effect from April 2013, while the tax credit changes apply from mid-2012. The $1000 provided by the government on joining the scheme is retained.

Revenue Minister Peter Dunne said in a statement: “We have given workers and employers two years to adjust and plan for the increased contribution rates, which will kick in at a time of strong forecast economic growth.”

Savings from the tax credit tweaks total $2.6 billion and are forecast to reduce Crown costs by $513 million in the 2011-2012 year.

The reduction in government contributions is offset by increased contributions by employers and employees, meaning the total level of inflow to KiwiSaver schemes remains steady.

Total funds under the scheme presently total $7.9 billion, rising to an estimated $60 billion by 2021.

Budget documents claim the increased minimum contribution will lead to high levels of long-term savings than under the current settings.