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SuperRatings   ⟩   News & Insights   ⟩   Insights   ⟩   Changing Contribution Rates – Potential Impacts

AuthorAdmin

DateApril 3, 2019

CategoryInsights

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In light of the new KiwiSaver contribution rate changes, which came into effect on 1 April 2019, SuperRatings utilised their Net Benefit model to quantify the actual impact on a member’s KiwiSaver balance.

The Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill introduced contribution rates of 6% and 10%, in addition to the 3%, 4% and 8% rates previously offered, providing members with greater flexibility and allowing more tailored financial plans. The 6% rate also bridges the gap for members currently contributing the minimum who don’t have the means of contributing 8%.

SuperRatings analysed the difference in outcomes using their Net Benefit methodology, which aims to show the dollar amount credited to a member’s account. SuperRatings’ Net Benefit methodology models investment returns achieved by each scheme over a seven-year period, as well as the fees charged. The analysis uses a scenario of a member that has a salary of $50,000 and a starting balance of $20,000 and a tax rate of 17.5%.

SuperRatings’ analysis shown in the chart below, indicates that a member contributing 3% into the median Conservative Fund would have generated a balance of $38,261 over the 7 years to 30 June 2018, whereas a member contributing 6% would have a balance of $49,272, a difference of over $11,000.


Source: SuperRatings

Evidently, additional contributions coupled with the benefit of compounding can have a significant impact on members’ account balances over the long term. In addition to supporting members to select an appropriate contribution rate, helping members to choose a suitable fund type continues to be an important determinant of member outcomes.

For more information contact:

Gordon Toy
03 9623 6373
Gordon.Toy@lonsec.com.au

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