Finance Minister Bill English has announced that National will introduce automatic enrolment for KiwiSaver in 2014/15, subject to returning to surplus.
“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,” he says.
“As signalled in the Budget, we believe there is merit in a one-off KiwiSaver auto-enrolment exercise, where people in the workforce not already in the scheme would be signed up with the ability to opt out.”
If National returns to government it will finalise details after considering submissions to a public discussion paper to be issued early next year.
This policy is part of the government’s plan to build genuine national savings. It complements other measures including a return to budget surplus by 2014/51; last year’s tax reductions on work and savings and the plan to provide investment opportunities through the mixed ownership model for state assets.
“These measures are pushing in the same direction households are already moving,” Mr English says.
“Having spent more than $1.10 for every dollar they earned three years ago, households will this year have a positive savings rate for the first time in more than a decade.”
The Government decided against introducing auto-enrolment before 2014/15 because its immediate focus remains on returning to budget surplus.
“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,” Mr English says.
Reduction of debt is real saving. Borrowing to invest isn’t just not real savings, it’s stupid.
“Depending on the uptake and design, officials estimate a KiwiSaver auto-enrolment could cost the Government up to $550 million over four years – including the one-off $1,000 kick start payments to new members and ongoing annual member tax credits. We intend to fund this from within existing budget allowances.”
This measure will catch people who haven’t got round to enrolling but stops short of compulsion.
The Government agrees with the Savings Working Group that a compulsory savings regime is not warranted, Mr English says.
“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.”
KiwiSaver is a very generous scheme. If you’re not enrolled now you either don’t need it, don’t understand it, haven’t got round to it or can’t afford it.
Auto-enrolment will catch all of these groups. Those who have better use for their money or cant’ afford it will opt out, but most of those who can’t understand the scheme or haven’t got around to joining will stay in which will help build national savings and ensure more people are providing for their own retirement.