The removal of the $1,000 KiwiSaver ‘kickstart’ incentive in last week’s budget could be the precursor to a blanket auto-enrolment of employees, according to Bruce Kerr, head of Workplace Savings NZ.
In 2011 the National government announced it would enroll all employees not yet in a KiwiSaver scheme under a so-called ‘soft compulsion’ policy once the budget was back in surplus. This year’s budget recorded a deficit of $684 million.
Kerr said while the government has not officially put ‘soft compulsion’ back on the political agenda, cancelling the kickstart payment “would make it easier to implement”.
“With the kickstart payment, auto-enrolment would come with a hefty price-tag,” he said.
David Beattie, chief investment officer with NZ-owned investment firm and KiwiSaver provider Grosvenor, said the move at least “cleared the way for discussion” about auto-enrolment for all.
“It was probably necessary for the kickstart to go if enrolment becomes compulsory at the employee level,” he said. “Fiscally, the government couldn’t afford to pay the kickstart for the 500,000 or so employees not already in KiwiSaver.”
However, Beattie said the industry was caught on the hop by the budget announcement.
“Realistically, it was a question of ‘when’ not ‘if’ but we’re a bit disappointed the government has [removed kickstart] so soon,” he said. “It will make it more difficult to encourage those who haven’t joined KiwiSaver, to do so.”
On the upside, Beattie said the emphasis should now shift to the long-term benefits of KiwiSaver – including the ongoing annual boost from the $521 government co-payment – rather than short-term incentives.
However, he said the budget decision would immediately result in fewer children joining KiwiSaver.
“If people stop enrolling their children that wouldn’t be a good outcome,” Beattie said.
He said financial advisers aligned with Grosvenor did use the $1,000 incentive as a selling point to engage families in KiwiSaver.
“Some of them use a pretend $1,000 note as a tool,” Beattie said. “They’ll a different approach now… advisers will have to work a bit harder to attract new KiwiSaver members.”
Jonathan Eriksen, head of his eponymous Auckland-based actuarial and consulting firm, agreed the removal of the incentive would set back financial literacy efforts for the under-18s.
“KiwiSaver is where children learn the benefits of saving,” he said. “And if they haven’t learnt by 18, it’s too late.”
As at the end of April this year, over 366,000 KiwiSaver members were under 18, Inland Revenue Department figures show. According to Statistics NZ, there are about 1 million New Zealanders aged under 18.
Eriksen said axing the kickstart – which he labeled a “disgraceful, short-term move” – would also discriminate against lower-income earners.
“The kickstart payment enabled beneficiaries and low-income earners to enter KiwiSaver and establish a savings habit,” Eriksen said.
Binu Paul, head of online KiwiSaver comparison tool SavvyKiwi, said removing the kickstart would have an impact beyond the fiscal implications.
Paul said the most-recent government tinkering would probably harden the attitude of those 1 million plus eligible New Zealanders who haven’t yet joined KiwiSaver.
“It probably just confirms the view of ‘conspiracy-theorists’ that future regimes would change KiwiSaver again,” he said.
Eriksen said after four downgrades by the current government “there’s nothing left to change except taking away the $521 member tax credit”.
Finance Minister Bill English said dropping the kickstart would save the government more than “$500 million over the next four years”.
“This money is being reinvested in this Budget into priority public services,” English said in a statement.
The final IRD KiwiSaver evaluation report published this February, found almost 70 per cent of members surveyed said KiwiSaver incentives were a strong motivation to join the scheme “with 19 per cent saying they were the most important reason”.
“The data in this report suggests these incentives have been more successful at getting people to join KiwiSaver than promoting additional savings,” the IRD report says.
KiwiSaver providers have one month to adjust their compliance documents to accommodate the kickstart change, Beattie said.
“Right now, we’ve got a lot of people running around putting stickers in investment statements.”