A 'soft compulsion' option for getting people not enrolled in KiwiSaver into the scheme would see a third of them decide to stay in at a cost of about NZ$300 million for the government, Prime Minister John Key says.
The government was currently seeking advice on auto-enrolling people in the workforce not currently in KiwiSaver, but giving them the opportunity to opt out.
The advice received so far indicated about a third would choose to stay, meaning two-thirds would opt out, he said.
“The good news part of that I think it would encourage more New Zealanders into KiwiSaver. The bad news is it costs the government upfront in the order of propably NZ$300 million. So there’s obviously a trade-off here between being able to afford that cost, and getting us back into surplus,” Key told media in Parliament Tuesday morning.
About 1.8 million New Zealanders - both in and outside the workforce - have joined KiwiSaver since its introduction four years ago. Estimates are that as many as one million people in the workforce of 2.2 million are not currently enrolled in the scheme. Full enrollment of that million people would cost the government NZ$1 billion up front, given the NZ$1,000 dollar Kickstart payment for joining the scheme.
But if only a third opted to stay in the scheme, the cost would be closer to NZ$300 million upfront - those who opt out are not able to keep their Kickstart payment.
Voluntary KiwiSaver join-up rates have sat between 18,000-25,000 over the last six months, although the rate has has been falling.
Opposition parties have put this down to the government's decision in the May 2011 Budget to cut its 'member tax credit' payments in half. See more here.
The issue of encouraging more private savings in New Zealand reared its head again last week, when ratings agencies Fitch and Standard & Poor's both downgraded New Zealand's sovereign credit rating from AA+ to AA, citing concerns about the country's overall foreign indebtedness, made up mainly of private sector debt owed by the banks.
The Labour Party is also considering policy looking at a form of compulsory savings, although whether it be soft or full compulsion remains to be seen.
4 Comments
$300million is chump change, or in other words one weeks worth of debt, or 75 bucks for every person alive in NZ, which govt will borrow at 5% so people can invest and get less. What a bunch of idiots, anyone with an ounce of brains knows that saving is only a good idea if you have no debt. Obviously we should be paying off our debts before we start saving money. The issue around the downgrade was because of foriegn debt, not lack of savings. Pay back your debts. There is no rhetoric around encouraging people to pay off debts because that would cripple the whole money supply, and instead of being honest about that, govt tells us we need to save.
That's a perfectly good reason why you should not join KiwiSaver and why you should not be forced to do so. You would not be forced, under this "soft compulsion" idea.
However, there are others who could and should be saving and whose savings would help to improve the national position - but who haven't been enrolled because they haven't changed jobs, and who are too dopey or too lazy to get round to enrolling themselves.
The trick for Government would be to devise a process that would catch them, but not you. Presumably they haven't thought of one.
I wonder where the PM gets his figure of 2/3rds of people opting out from?
Soft compulsion already applies to people changing jobs, who aren't in KS yet - so we can see what the patterns are.
In August 2011, 8476 people enrolled automatically and 906 opted out. In July 2011, 8711 automatically enrolled and 753 opted out. Overall that's about 10%. I have covered 2 months to cover the 2-8 week opt out period.
I appreciate that more than 10% may opt out if there is a "C-day" - but 67% seems high.
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