Sweetners to encourage half the workforce to sign up to the state's KiwiSaver retirement savings scheme will ensure its success, fund managers say.
Workers will receive up to $20 a week in tax credits if they contribute the minimum 4 per cent of their gross income. In the other significant change, employers will be forced to match the employee contribution, phased in over the next four years, starting with 1 per cent next year.
PricewaterhouseCoopers chairman John Shewan said the changes effectively made KiwiSaver a compulsory scheme because "you would be a bit silly" not to opt in. "There seems to be an increasing appetite for compulsion and in practicable terms that is what we have got now."
The controversial compulsory employer contribution would take some of the shine off the corporate tax cut, despite being partly offset by a $20 a week subsidy from the Government, Mr Shewan said.
Investment Savings and Insurance Association chief executive Vance Arkinstall said the changes to KiwiSaver would ensure its success.
"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."
Mercer, which is one of six Government-appointed default providers for the scheme, expected the added benefits would result in the number of people opting into KiwiSaver to at least double from its previous estimate of 20 per cent over the next seven years.
"If you can afford savings at all you are strongly encouraged now to do them," Mercer head of New Zealand Tim Jenkins said.
Mr Jenkins said employers should view compulsory matching contributions positively because they would have a year to adjust and receive a tax credit to soften the initial cost.
AMP's general manager of savings and investment, Roger Perry, expected the KiwiSaver take-up rate to hit 80 per cent in the next few years, similar to the United States, which also has automatic enrolment schemes.
Some existing workplace superannuation schemes that were previously available only to management would now have to be opened up to all employees.
Some schemes would expand rather than contract as a result of KiwiSaver, Mr Perry said.
Business NZ chief executive Phil O'Reilly said KiwiSaver would impose more costs on employers. "The proposals to make compulsory matching employer contributions for KiwiSaver, even with the tax credit for reimbursements, will load costs on employers that are not needed at this difficult time.
"Compulsory costs imposed on employers without their agreement or buy-in is not helpful given the significant negative elements in the current business environment."
But New Zealand Exchange chief executive Mark Weldon said the matching tax credits for employer contributions would give businesses an edge in attracting and retaining high-value staff.
