19 Dec 2015

'Skinny' budget put kibosh on KiwiSaver

3:59 pm on 19 December 2015

Official documents show Treasury believes automatically enrolling all workers in KiwiSaver is affordable, and if combined with an awareness campaign could have far reaching benefits.

Man holding piggy banks

Man holding piggy banks Photo: 123RF

Last month Finance Minister Bill English said plans for a one-off mass enrolment were off the table, because the government's surplus was too "skinny" and it could not afford it.

Papers released to RNZ News under the Official Information Act show Treasury estimated 271,386 people could be enrolled through a one-off exercise in July 2016.

It said depending on take up, it could cost an extra $28 - $86 million in the next four years, plus $3.4m - $4.5m in Inland Revenue administration costs.

Just days after using this year's budget to axe the $1000 KiwiSaver kickstart fund, Mr English said the government would look at bringing in mass auto-enrolment for the retirement savings scheme.

At the time he said auto-enrolment would be cheaper without the kickstart.

Labour's finance spokesperson Grant Robertson said the cost was lower than expected and the government's decision not to go ahead showed the its lack of commitment to the savings scheme.

Grant Robertson

Grant Robertson Photo: RNZ / Diego Opatowski

"They've consistently undermined KiwiSaver: cutting back on their contributions for the Member Tax Credit, getting rid of the kick-start ... and unfortunately their lack of commitment to KiwiSaver means they are not likely to follow through on the idea of auto-enrolment."

Mr Robertson said it was very disappointing.

"While Treasury had some concerns about whether there were large numbers of people who would be captured in an auto-enrolment exercise, it has recognised the value to New Zealand of getting people," he added.

Treasury prefers one-off scheme

Treasury concluded that while the cost was affordable, it exceeded the benefits, because the overall boost to the economy was limited and national savings would only rise by $16m - $18m.

Officials' preferred option was to conduct a one-off mass auto-enrolment exercise alongside a public awareness campaign designed to improve engagement with the retirement savings scheme.

A campaign was needed, it said, because almost 1 million members did not currently make contributions to their account.

Treasury noted that 23 percent of wage and salary earners already enrolled did not receive government subsidies, either because they were ineligible or because they made no contributions themselves.

"One-off enrolment could be made worthwhile if combined with a wider KiwiSaver awareness campaign by government and providers to improve choices of fund, asset allocation decisions and the enforcement of market discipline on KiwiSaver providers," Treasury said.

It noted the one-off exercise would probably only boost membership by between 5-7 percent, bringing forward what would happen naturally in three years of organic growth.

"Nevertheless, there are some economic growth, economic sustainability and welfare outcomes that can be advanced by KiwiSaver's policies and increasing enrolment via the scheme," it concluded.

Treasury said the Commission for Financial Capability also endorsed the idea of an awareness campaign.

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