When the change was announced, Treasury said it expected 80% of the employer cost to be met by lower-than-expected pay rises.
Kelly Eckhold, chief economist at Westpac, said it was likely that all else being equal, pay rises this year would be lower.
“In the end, employers will pay a total level of remuneration in line with prevailing supply and demand trends in the market. Changing the allocation of what employees do with that remuneration is not likely to change that assessment. Having said this, it will be impossible to know the counterfactual as we can only observe what employees are paid as opposed to what they might have been paid.”
Catherine Beard, director for advocacy at Business NZ, said businesses had to consider the total cost of employing someone.
“ACC charges, potentially fringe benefit tax, you’re going to have training costs, you might have uniforms … as someone who is hiring, you think about what is the total cost to me and my business. So over time, any cost of employment does end up being factored into how much it costs to hire someone … superannuation KiwiSaver will be part of it.”
Hard times in apparel sector
Carolyn Young, chief executive of Retail NZ, said it was still a tough environment for retailers.
“Consider a retailer in maybe the apparel sector. They’ve been heavily hit over the last 12 months.
“Last year, apparel monthly sales were down 5% in January, 9.1% in February, down 8.5% in March, down 7.8% in April, down 4.4% in May, down 1% in June … the whole year was really tough.
“They’re really running by the skin of their teeth – there’s no fat in the business … we do know that increasing KiwiSaver … is a place where, as a country, we need to head.
“The real difficulty is, it’s so challenging right now for retail to navigate increasing costs.”
Carolyn Young, CEO of Retail NZ.
She said that until the economy clearly improved, the contribution increase was likely to mean smaller pay rises.
“It’s definitely a tricky time and definitely a space where employers will have to navigate their budgets really carefully around how they can recognise and reward staff alongside other increases that have been put in place.”
Craig Renney, who is the Council of Trade Unions’ chief economist and policy director and also a Labour candidate in this year’s general election, said it was likely to mean that more low-income people opted out of KiwiSaver. “If you’re struggling with the cost of living, 1% on your salary is quite a lot.”
He said a better solution would be an Australia-style system where it was up to the employer to cover the cost of superannuation savings, and employees who did not take it up missed out, rather than receiving it in their pay packets.
Meanwhile, a survey by ANZ showed a third of KiwiSaver members intended to stick with the new 3.5% default rate when it took effect. A further 21% would contribute more if their employer matched it.
Only 10% intended to request a temporary reduction.