KiwiSaver to have auto-enrolment

October 18th, 2011 at 3:00 pm by David Farrar

has just announced that when the Government returns to surplus (in 2014/15), they will run an automatic enrolment campaign for employees. This will apply in the same way as when you get a new job – you can opt out within a month.

The estimated cost (based on 55% of those auto-enrolled staying enrolled) is $550 million over four years. They will not do the auto-enrolment before the return to surplus as this would mean the Government is borrowing to pay for the savings subsidy, which mean overall national savings do not increase – you just increase private savings and public debt.

English has said National will not make KiwiSaver compulsory as some peeple prefer to save for retirement in other ways.

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15 Responses to “KiwiSaver to have auto-enrolment”

  1. Richard29 (377 comments) says:

    Good.

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  2. Simon (785 comments) says:

    If you have a mortgage the better and safer return is pay off the bank loan and not put extra money into some kiwi saver provider retard who will make less than inflation and charge 1% pa.

    Kiwi saver is a government / financial sector con.

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  3. leftyliberal (651 comments) says:

    It’ll be interesting to see whether this will be needed or not by 2014/2015, as currently KS takeup seems to be around 10k/month (that’s explicit signups via the provider).

    Good that they’re waiting for surplus, though I suspect the timeline is a little on the optimistic side. It would be also good if they’d start looking at increasing the contribution percentages again once out of surplus and reinstating them as tax-free – we need to encourage more private saving.

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  4. bc (1,395 comments) says:

    Seems a sensible policy to me.
    I also thing the 2014/15 timeline for Government surplus is optimistic. The economy doesn’t seem to be coming right anytime soon.

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  5. bc (1,395 comments) says:

    oops ‘think’ not ‘thing’.

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  6. Richard29 (377 comments) says:

    @Simon

    If you’ve currently got a mortgage at 6% and are earning a wage of say $50k you are a lot better to put the money in Kiwisaver rather than the mortgage. 2% ($1k) + 2% from employer ($1k) + Govt contribution ($500).

    That’s $1500 return on your $1000 investment + whatever you get in after fee and inflation returns on your fund choice + $1000 bonus in the first year.

    Putting that same $1000 on your mortgage would save you around $50-60 in interest over the same time period.

    If you are worried about the safety of your returns then stick with a default conservative fund (but you’ll earn less relative to inflation over the long term).

    Kiwisaver is not a government / financial sector “con” it’s just a giant tax refund giveaway to working New Zealanders (and a free customer giveaway to the finance sector).

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  7. jamsteve (10 comments) says:

    If the books are returned to surplus by 2014/15. So in other words they’re going to do… nothing. I guess a point for National being consistent then!

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  8. Chthoniid (2,047 comments) says:

    Not sure I grasp the point of the auto-enrolment.

    I wasn’t aware that there was an issue with enrolments by employees that would make this an appropriate response to that issue.

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  9. Nick R (522 comments) says:

    This is a good policy, but it won’t ever happen. By the time the economy is in surplus (which won’t be in 2014-15 or anything like it if you believe the ratings agencies) they will either have changed their mind, or they won’t be in Government any longer.

    Of course, if I am wrong and this is going to turn around NZ’s savings, no doubt the ratings agencies will reverse the downgrades.

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  10. KiwiGreg (3,279 comments) says:

    @ Chthoniid It’s to put incumbant employees in the same position as new employees or those who change jobs – basically inertia will get more of them enrolled. But it’s kind of a goofy policy, because if (as they say they are) they oppose compulsion and people can already freely voluntarily enrol why have a policy designed solely to catch those who have chosen NOT to enrol (whether consciously or because they are lazy or whatever).

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  11. KH (695 comments) says:

    Kiwisaver should be compulsory for all. About 15% and no Government contribution required. I know all contributors to this blog are financially secure and marvellous investors. But we need to be protected from those others who aren’t and don’t. Looking after their pensions is compulsory for me now and I want that to change.
    I acknowledge the points about the financial services industries rort. But that something we have to endure anyway. Or rather that industry needs to be ripped apart and rebuilt. Kiwisaver or not.

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  12. Viking2 (11,686 comments) says:

    It already is auto enrollment.

    New employees in a new employment situation are automatically enrolled with 6 weeks to opt out if they choose, otherwise they are in.

    This is just spin from English because he couldn’t think of anything else to get publicity. It amounts to a crock of shit.
    But then who would be surprised?

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  13. KH (695 comments) says:

    Comment in the media mostly is on the line that this is a non event or not enough of an event. Most would recommend that Kiwisaver needs to be strengthened.
    I reckon that kiwisaver inevitably will become compulsory (universal and 15%) and politicians of all shades will support that. But they are being very politically cautious and there will be a staged step-up through a number of levels.
    I also think politicians are being too cautious and New Zealanders at large are not negative and sensitive about it at all.

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  14. Spoon (104 comments) says:

    @Richard29

    Your maths is a bit short-sighted.

    In your example the thing you’ve missed is that the $1k is still on the mortgage. Say it’s the first year of a 30 year mortgage – you’ll pay that 6% interest on the $1k difference every year, so it actually costs you $1800, plus you’ve still got to pay the $1000 off at some point.

    Another thing of note is that employers may (rightly or wrongly) be more comfortable giving you a pay rise if you aren’t on Kiwisaver (logically enough – if they decide your example person is worth $51k it doesn’t make any odds to them how it’s paid, but that’s the amount they’re comfortable with). This drops the return to anywhere between $500 and $1500.

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  15. Richard29 (377 comments) says:

    @Spoon – re the mortgage comparison – yup the $1000 would still be on the mortgage in year 2, but the $2500 would still be in kiwisaver on year two also. Passive stock market returns on $2500 will outperform the interest savings on $1000 of mortgage over the long term.

    Re: Employers taking the ‘total remuneration’ approach to Kiwisaver. Yup that is an issue, although given that you could join Kiwisaver at any time and most employees are already in the scheme I would think the employers in your example would assume kiwisaver membership (or the possibility of it) across the board and discount everybody’s weages accordingly, so you’d still be worse off to opt out of it.

    Also the $500-1500 return scenario you describe still stacks up pretty nicely compared to privately saving, so the only people who should not be in kiwisaver are the ones who have no plans to save for their retirement (or get a big first home subsidy).

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