An auto-enrolment blitzkreig could cost the government less than $100 million over the next four years, according to a spokesperson for the Finance Minister, Bill English.
As flagged on Investment News NZ (IN NZ) last week, the spokesperson confirmed mass auto-enrolment would be back on the government agenda “over the next six to 12 months” following the removal of the $1,000 ‘kickstart’ payment in the May budget.
“It’s been government policy for quite a while that it would bring in auto-enrolment when it could afford it,” the spokesperson said. “[Prior to removing the kickstart] Treasury had forecast auto-enrolment would cost between $100 million to $290 million over the next four years… without the kickstart the cost would be below $100 million over four years.”
However, the spokesperson was unsure whether any proposed mass auto-enrolment would apply to all employees not yet in KiwiSaver or to a wider group.
Excluding those over 65, population statistics suggest approximately 3.8 million New Zealanders could be in KiwiSaver. As at the end of April, the Inland Revenue Department recorded just over 2.5 million KiwiSaver members, of whom over 360,000 were aged under 18 (and therefore not eligible for the $521 annual member tax credit government top-up).
However, the $100-290 million figure contained in the Treasury half-yearly economic forecast, published last December, indicates the government budgeted for a relatively low retention rate for those auto-enrolled in KiwiSaver. Under KiwiSaver rules, which the government has said it would retain, auto-enrolled members have an eight-week period to opt out.
“The Government has announced its intention to consult on the design of a one-off KiwiSaver auto-enrolment exercise to increase the number of KiwiSaver members,” the Treasury December document says. “Depending on the timing, design features and take-up rate, these costs [primarily the $1,000 kickstart] could be in the order of $100 million to $290 million over the first four years after the auto-enrolment takes place, and are expected to be funded out of the operating allowance.”
Retirement Commissioner, Diane Maxwell, said auto-enrolment would be a positive development – even without the $1,000 kicker.
“Mass auto-enrolment for KiwiSaver works as a ‘nudge’ for procrastinators and without the kickstart payment the cost to government is significantly less,” Maxwell said in a statement. “It’s an effective form of soft compulsion that still allows people to opt out if they actively choose to, either because they believe they have a better plan, or believe they can’t afford it.”
She said the government would need to keep the annual $521 member tax credit in place to prevent more people taking contribution holidays.
“With contribution holidays higher than we’d like, it’s good to see the member tax credit is still in place as an incentive to keep contributing,” Maxwell said.