Auto-enrolment would only add 5% to KiwiSaver: Report

A one-off enrolment of all salary and wage-earners who are not KiwiSaver members would likely cost more than it would deliver in benefits, a Treasury report says.

Wednesday, January 20th 2016, 9:50AM

by Susan Edmunds

The report, prepared for Finance Minister Bill English last year, has been released under the Official Information Act.

The Government has previously said it intended to carry out a one-off enrolment day once it returned to fiscal surplus.

People would be given the opportunity to opt out if they did not want to be automatically enrolled.

It was designed to tackle the problem of people who had not got around to signing up to KiwiSaver.

Last year’s removal of the $1000 kickstart incentive for all new KiwiSaver members made the move a cheaper one to implement.

But Treasury said the case for one-off enrolment was diminishing as time went on and more and more of those who would be captured by the exercise enrolled any way.

“Weighed up against the costs, the benefits for national saving and individuals’ saving of a one-off exercise are minimal.”

Analysis by the Treasury and Inland Revenue in 2011 found that one-off enrolment would increase membership by around 330,000 individuals and thereby boost the 1.6 million membership by 20%.

But since 2011, the rate of enrolment into KiwiSaver has been high and exceeded officials’ expectations. The total membership is now 2.5 million and 1.4 million of them are salary and wage earners.

A one-off enrolment exercise would only boost membership by 5% to 7%, the report said.

The economic costs of a one-off enrolment exercise amount to $4 million for implementation; $10.4 million, being the 20% deadweight cost for four years of subsidies (for a 1 July 2016 exercise); and unspecified costs on individuals, employers and KiwiSaver providers which could be minimised in the scheme design.

But it said the exercise could have benefits if it was part of a wider campaign to raise awareness of the scheme, which could prompt members to consider their fund choice and engage the large number of people who do not make enough contributions each year to receive the member tax credit.

It wants groups working together including 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.

Tags: KiwiSaver