KEY POINTS:
Salaried workers, whether they opt into KiwiSaver or not, should be prepared for a sharp halt in the pay rises they have been enjoying in recent years due to the compulsory employer contribution announced at the Budget.
And those too in debt to become a KiwiSaver member at this stage will have the double whammy of seeing their pay rises dry up.
"One of the biggest concerns of families struggling with debt is will KiwiSaver affect my pay increases over the next couple of years? Will they give us lower pay increases?" asks Raewyn Fox, chief executive of the Federation for Family Budgeting Services.
"A resounding yes," says Jennifer Mills, a leading employment lawyer and partner at Minter Ellison Rudd Watts, which has offices in Auckland and Wellington.
As companies seek to find the extra money for their now compulsory Kiwi-Saver contributions, they are battening down the hatches on other costs, she says. Since the Budget, she has had a number of concerned employer clients asking for advice on what their new responsibilities will be.
"Compulsory employer contributions have come as a huge surprise, and there is no way this won't alter our approach to wage increases during the next round of negotiations," says one Minter Ellison client, a senior HR manager in a manufacturing business.
Mills has conferred with her Australian colleagues to see how compulsory employer contributions affected salaries across the Tasman.
"We've had compulsory Super for some time. Everyone treats it is a cost of doing business. Some employers use Super as an incentive to employees, by offering a contribution which is over and above the statutory minimum of 9 per cent, for personal tax effectiveness," says a senior associate at Minter Ellison, Australia.
Mills sees relations between employers and employees in New Zealand going through a rocky phase in the months ahead.
"A consequence of compulsory employer contributions is likely to be increased industrial action if the unions still push for significant wage increases," she says.
Andrew Little, national secretary of the Engineering, Printing and Manufacturing Union (EPMU), plays down the likelihood of "mayhem" from unions in the next year or two. Companies' contributions to work superannuation schemes are being included in the next collective bargaining rounds, he says, and employers he has spoken to have been pretty accepting of the 4 per cent contribution they are expecting to make.
The EPMU is looking to Australia for some guidance on union superannuation funds and is keen to adopt the same active management for its Industry Retirement Investment Savings fund (IRIS) that the union superannuation funds have there.
Rather than having a fund manager, the investment policy is made by a board of union reps and employers in the union schemes in Australia.
A layer of fees is saved and so returns to union members higher than the conservative returns other schemes are achieving, says Little.
"We want to see that our industry's union is not tied up with fund managers. Industry funds in NZ have accepted pretty modest returns. When you see what the Australian industry super funds are getting by way of returns, they are far superior," he says.
Although the uptake of KiwiSaver is likely to have gone up by thousands, thanks to the Budget, there will still be plenty of people who cannot afford to opt into the scheme because of debt.
Those who cannot afford to become a KiwiSaver member will now have more incentive to get out of debt as fast as they can, says both the Retirement Commission and the Federation of Family Budgeting Services.
For people in debt, there is still a "bias toward repayment of the debt," says Ian Rowe, PriceWaterhouse-Coopers' director in taxation services.
"The way in which floating rates have gone with hire purchase or credit card debt, you are going a long way to beat [paying that off], despite enhancements of tax credit," he says.
For those who can make sacrifices, and opt into KiwiSaver, it is worth making them, says Rowe.
"From the KiwiSaver members' point of view, they are getting more than double what they were getting prior to the Budget."
"Someone on $80,000 would have contributed $3,200 per annum on KiwiSaver, now with their tax credit and employer contribution of four per cent their income balance will be $7,440 each year."
There are people of all incomes for whom a four per cent contribution to a retirement scheme will be too much, says Raewyn Fox, chief executive of the Federation for Family Budgeting Services. "Lots of people earning $100,000 will struggle on a mortgage and 4 per cent of $100,000 is quite a lot of money. I don't think it is a low- income phenomenon.
"For us it's not about people's income that determines whether or not they manage that. It's down to their other commitments and debt.
"There are a number of people in debt situations for whom another four per cent could be the straw that breaks them."
Fox is hopeful: "A lot if people are thinking about it, saying 'right at this minute it is not an option for me. Maybe I'll get rid of some debt first'.
"You have got to look ahead and that's what budgeting is about. This is a really good budgeting tool."
Financial planners are likely to be helping families figure out if they can afford the four per cent loss of post-tax income. Ffinancial adviser Lisa Dudson of Acumen says if people are willing to take a look at their spending they might find a reshuffle of outgoings could make it possible.
"People waste a lot of money," she says. "People have got to make a choice. It's a long-term benefit. It's a no-brainer, it's well and truly worth-while. My inclination would be to try and make it work. A significant number of people can do four per cent if they recognise the benefit."
The Retirement Commission is producing a KiwiSaver decision guide, which will look at the pros and cons of the scheme. It is reminding people that even if they opt out of KiwiSaver now, they will be re-enrolled each time they start a new job, allowing them to again think about whether to stay a member.
