KiwiSaver membership would only increase by about 5-7 per cent under a one-off auto-enrolment process, according to Treasury papers released under the Official Information Act.
The Treasury analysis – prepared for the office of Finance Minister Bill English last August and published last week – predicts auto-enrolment would likely result in 168,000 (out of a maximum target group of about 375,00) new KiwiSaver members if implemented last year.
“A one-off enrolment exercise of the One-Off Target Group is estimated to only produce a marginal increase in individuals’ savings and the increase in national savings will be $16-18 million in the first year,” the Treasury report says. “…Therefore, it appears the costs of one-off enrolment exceed the benefits, despite the costs being moderate.”
If exercised this year, Treasury says auto-enrolment would incur implementation costs of up to $44 million on top of member tax credit (MTC) subsidies of about $580 million over 2016/17.
The government originally planned to implement KiwiSaver mass auto-enrolment in the 2014/15 fiscal year, with the surprise axing of the $1,000 ‘kickstart’ subsidy in the May 2015 budget expected to ease the process.
In November last year, English postponed any immediate action on auto-enrolment citing fiscal prudence.
“So we’ll keep it under review, and when there is more fiscal room we may have another look at it,” he told media at the time.
However, Treasury notes the “case for one-off enrolment diminishes as time goes on”.
“Over time, the combination of the effective policy of auto-enrolment on starting a new job and New Zealand’s high job turnover rates will sweep up those who might otherwise procrastinate about saving,” the Treasury report says.
“The policy would only bring forward three years of organic membership growth.”
Treasury estimates auto-enrolment would snare only a maximum 129,000 new KiwiSaver members (out of a target group of 234,00) if carried out in 2017.
The report also advises against any government efforts to force current non-contributing KiwiSaver members to restart payments.
“The current system design provides no formal way of making existing members re-start or increase contributions and there is no way of making the (110,000) self-employed non-members make regular contributions, which, in any case would be inconsistent with other tax policies for self-employed,” Treasury says.
Despite the lack of a clear economic case, the Treasury report says auto-enrolment “combined with an awareness campaign” could improve broader member engagement with KiwiSaver.
For example, Treasury says a ‘KiwiSaver Awareness Day’ could be used to educate members about investing appropriately, maximising MTCs or imposing “market discipline on providers in respect of fees and service levels”.
The report recommends a cross-agency coalition comprising the Commission for Financial Capability, Ministry of Business Innovation and Employment (MBIE), the Financial Markets Authority and Inland Revenue to develop a KiwiSaver awareness strategy.
“MBIE has also suggested Ministers may wish to consider a KiwiSaver awareness campaign on its own given the limited benefits of one-off enrolment,” the Treasury report says.