National's KiwiSaver Changes Could Cost a Worker $200,000

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National's KiwiSaver Changes Could Cost a Worker $200,000

The graph below shows how a worker with a KiwiSaver account will stand to lose as much as $200,000 in accumulated savings over their working life as a result of the National-led Government's changes to the scheme. It compares savings under the National scheme where a worker continues to makes a 4 per cent employee contribution, or only the new 2 per cent minimum (alongside the reduced minimum employer contribution of 2 per cent ), with the "4 plus 4" scheme of the previous Labour-led government.

KiwiSaver Comparison Graph: Bar Graph Comparing Accumulated Savings Under Labour and National Goverment Policies

Information for this graph is taken from tables, prepared by consulting actuaries Melville Jessup Weaver, which modelled accumulated savings under 4+4, 4+2 and 2+2 employee-employer contribution scenarios for a range of starting incomes, from $20,000 to $80,000 per annum, and a variety of starting ages, from 20 to 65. Click the links above to download the full tables in PDF format.

Assumptions

The graph above has been developed using the following assumptions:

  1. The employee and employer start contributing to KiwiSaver immediately.
  2. Employee salaries are assumed to increase at 3.5% per annum. Contributions are made fortnightly and assumed to increase in line with salary (eg. $200 today will be $230 in 4 years).
  3. Investments are in a managed fund which is a PIE (Portfolio Investment Entity). The PIE income is taxed at either 19.5% or 30%, depending on the salary.
  4. KiwiSaver contributions are assumed to be invested in a balanced fund earning a net real return of 3% per annum (on 30% tax rate) or 3.5% per annum (on 19.5% tax rate).
  5. No contributions holidays are taken.
  6. The one-off Government contribution of $1,000 is received 3 months after the first contribution is deducted from the pay.
  7. Tax credits worth a minimum of annual employee contributions and $1,042.86 each year are included from the date of the calculation.
  8. Employer contributions will be at 1% of employee salaries from 1 April 2008, increasing to 2% from 1 April 2009 under the National scheme. Employer contributions will be at 1% at 1 April 2008, rising annually to4% (at 1% increase on each of the subsequent 1 April dates where applicable) under the Labour scheme.
  9. For the National figures, a  fee subsidy worth $40 annually ceases after 1 April 2009.