He said KiwiSaver as it stands "won't do a lot" for the savings rates of ordinary New Zealanders and the government should consider further ways to encourage people into the scheme, including the removal of tax on KiwiSaver investments.

As well, Key said KiwiSaver would be "expensive to run" with the cost of government subsidies to the scheme estimated to hit $1.4 billion by 2011.

He said the current incentives to join KiwiSaver would benefit wealthy New Zealanders rather than those on lower incomes who need to build retirement savings.

Key told the IFA delegates when he first read the KiwiSaver proposals in the Budget lock-up he said to his deputy, Bill English, that if National had delivered such policies "every left-wing journalist in the country would be screaming it was a tax cut for the rich".

He said anecdotal evidence to date has suggested that despite the generous incentives not many employees have signed on to KiwiSaver.

Key cited the example of an enlightened Marlborough wine-maker who offered his staff an immediate 4% wage increase and a promise to match a 4% contribution to KiwiSaver from next year (rather than the 1% required) to encourage their retirement savings.

Only two of the 14 staff decided to join KiwiSaver, he said. He said investment tax relief and a focus on improving the financial literacy of New Zealanders could go a long way to making KiwiSaver more viable.