Increased Savings Pool Would Add Jobs, Achieve Higher Wages
Increased Savings Pool Would Add Jobs, Achieve Higher Wages and Double Pensions
Funds in KiwiSaver would grow to $731 billion by 2066 if the scheme becomes closer to universal and covers 80 percent of employees and if contribution rates grow to 10 percent to fund a comfortable retirement for younger New Zealanders. KiwiSaver funds under management are currently $13 billion.
This projection assumes new KiwiSaver contributors phase up by 1 percent a year (0.5 percent of their income, matched by 0.5 percent from their employers) till they get to 10 percent.
A report by Infometrics, commissioned by the Financial Services Council (FSC), projects this option would inject an extra $52 billion into the New Zealand stock market by 2066. It is estimated up to an extra $3 billion will be available to invest in companies not listed on the exchange, such as cooperatives, incorporations and fast-growing companies that expect to list later.
And for the KiwiSavers, their retirement incomes would increase by an extra $300 a week on top of the state paid New Zealand Superannuation pension.
The extra domestic retirement savings invested here would also help lower the cost of capital for New Zealand companies. This would boost local investment, increase productivity and higher paying jobs.
About 50 percent of employees now have KiwiSaver accounts and the average employee in KiwiSaver is saving 5 percent of their income.
Infometrics has modelled what could happen if an enlarged KiwiSaver scheme covered 80 percent of all employees with a gradual phase-in to higher contributions reaching 10 percent of income. Infometrics projections have assumed new KiwiSavers would start with a total (employer plus employee) contribution rate of 1 percent in 2015, rising by a percentage point a year to reach 10 percent by 2024.
Under the main scenario the Infometrics models assume existing KiwiSaver members remain on their current contribution rate until the rate for new members reaches their rate, at which point they move on to the contribution rate path for new members. Coverage for employees is assumed to be universal, but with a conservative assumption that 20 percent of the workforce would not be required to contribute, if they had very low incomes or were not permanently working in New Zealand.
In Australia 91 percent of the workforce contribute to the universal Superannuation Guarantee, which is their equivalent of KiwiSaver.
FSC chief executive Peter Neilson said it had been calculated the half percent needed for someone starting work on the median wage equates 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 their KiwiSaver contributions multiply many times over to deliver a comfortable retirement in 40 or 50 years’ time.
In the intervening years the KiwiSaver funds will be invested in new assets which generate new sources of income and jobs.
“If the New Zealand domestic savings pool grows from $13 billion to over $700 billion there will be greater opportunities for fund managers to scale up their investments in New Zealand businesses, adding further strength and resilience to the New Zealand economy, which will give greater long-term security for the workforce,” he said.
About the Financial Services Council
The Financial Services Council has 22 member companies and 17 associate members. Members are managing nearly $80 billion in savings and provide financial services to more than 2 million New Zealand investors and policyholders.
If you have a life insurance policy or a KiwiSaver account then there is a more than 80 percent chance it is managed by a Financial Services Council member.
For further information visit www.fsc.org.nz