KiwiSaver auto-enrolment go-ahead

Auto-enrolment in KiwiSaver is set to become a reality. Photo / Thinkstock

Any New Zealand employees not already in KiwiSaver will be automatically enrolled in the scheme in a bid to improve the country's savings - but not until the 2014/2015 financial year the Government says.

Finance Minister Bill English this afternoon said his Government had considered KiwiSaver auto-enrolment and decided to go ahead with the plan in 2014/15 if its books have returned to surplus by then.

Coming just a couple of weeks after international ratings agencies downgraded New Zealand's credit rating on concerns about the country's reliance on foreign savings, Mr English said the policy was part of his Government's programme "to build genuine national savings".

"In the current environment, we need to be mindful of the fiscal costs of all programmes. So we will proceed with KiwiSaver auto-enrolment in the same fiscal year in which we return to surplus and start to repay debt.

"While we're running deficits in the next two years, that's money the Government would have to borrow. Borrowing more money to put into KiwiSaver accounts is not real savings. We are applying the same approach to resuming contributions to the Super Fund".

Details of the auto-enrolment framework will be finalised next year, after the Government considers submissions on a public discussion paper to be issued in early 2012.

Auto-enrolment is a form of "soft compulsion" for the savings scheme recommended by the Savings Working Group early this year.

It is "soft" because those enrolled will still be able to opt out. However, experience has shown that once enrolled, most workers either actively choose to remain in the scheme or don't act to opt out.

With the scheme still offering fairly generous incentives such as a $1000 kick start payment from the Government and ongoing tax credits, the large spike in enrolments resulting from auto enrolment will be a big item of expenditure in the Crown accounts.
Assuming 55 per cent of those automatically enrolled stayed with the scheme, officials estimate auto enrolment could cost the Government up to $550 million over four years.

Mr English said he intended that would be funded "from within existing budget allowances".

Workers must pay a minimum of two per cent of their pay into the scheme and that contribution is matched by their employer but those minimum contributions both rise to 3 per cent in April 2013.

Labour is expected to come out with some form of KiwiSaver compulsion in its savings policy to be released soon.

Mr English said his Government agreed with the Savings Working Group that a compulsory savings regime in New Zealand like that in Australia was not warranted.

"Many New Zealanders have already opted out of KiwiSaver because they have valid reasons for not saving for retirement right now - including paying off their mortgage or being members of private savings schemes."