Govt scraps 2014 KiwiSaver auto-enrolment plan in bid to reach surplus in 2014/15 year

By Alex Tarrant

The government has scrapped a half a billion dollar plan to automatically enrol all those not in KiwiSaver into the scheme in 2014/15 as it struggled to hit a miserly NZ$197 million surplus that year.

The decision is part of a suite of changes the government is looking to make to the national savings scheme, which also includes new reporting rules for KiwiSaver providers, and a review of how well the default provider arrangements have worked.

Finance Minister Bill English and Commerce Minister Craig Foss said the changes were part of the government’s plan to build “genuine national savings.”

That plan included the return to surplus in 2014/15, tax changes made in Budget 2010, the partial float of four government-owned energy companies, and a commitment to resume contributions to the Super Fund once a sufficient surplus was reached.

Deferred indefinitely

The auto-enrolment plan, announced in Budget 2011, was deferred indefinitely in Budget 2012, released today.

The government had planned to shift all those in the workforce not enrolled in KiwiSaver into the scheme, while giving them the choice to opt back out.

“The Government said it would proceed when it had sufficient surpluses to meet the forecast cost of up to NZ$514 million over four years,” English and Foss said in a press release.

“Proceeding with auto enrolment in 2014/15 is not now possible without putting the surplus at risk,” English said.

“Public consultation will now be deferred until after 2012 and the policy won’t be implemented until after 2014/15.”

Peter Nielsen, CEO of the Financial Services Council of New Zealand said the news was not surprising but was nevertheless disappointing. He said the move would further widen the savings gap between New Zealand and Australia, where compulsory savings have been in place since 1992. Contributions rates there are 9% but are moving to 12%.

"It’s always been clear that that timetable (for auto-enrollment) was tentative and conditional on a surplus and it indicates to me they aren't comfortable about achieving that," Nielsen said.'

Polling by the Financial Services Council found that Kiwis who weren't already enrolled in KiwiSaver were warm to the idea of auto-enrolment as a necessary inducement to saving for retirement.

Australians now have more than A$1.3 trillion in retirement savings. KiwiSaver, introduced in 2007, has grown to NZ$12 billion.

Addressing media in the Budget lock-up in the Beehive on Thursday afternoon, English defended the decision to defer auto-enrolment, given the government’s expressed intention to raise private savings in New Zealand (see video above).

English noted that the minimum KiwiSaver contributions would be rising from 2% to 3% from April 1, 2013 (a measure announced in Budget 2011), which would be a “considerable step.”

People would still be anxious about how fast their incomes were rising, English said in defence of delaying the auto-enrolment.

New reporting rules

Meanwhile, new disclosure rules from April 1, 2013, would require all KiwiSaver fund managers to report their performance and returns, fees and costs, and other key information in a standardised format on their websites, enabling investors to make direct performance comparisons between funds, English and Foss said.

“Under the new disclosure rules, KiwiSaver providers will have to produce four quarterly reports, and one larger annual report, for each KiwiSaver fund they run, using a standard template,” the said.

“The reports will contain information on returns, fees and charges, asset holdings, who manages the fund and any conflict of interests.

“Quarterly reports will be published within 10 working days from the end of each quarter, and an annual report will be published within 90 days of the end of the financial year. The reports will also be sent to the Financial Markets Authority,” English and Foss said.

ANZ Wealth managing director John Body said the clarity around new disclosure and reporting requirements was greatly welcomed as providers had been awaiting information on that issue for some time. "Standardised formats across all providers will make it easier for investors to find out more about their KiwiSaver accounts and compare the performance and management of their money. "Our view is that any change that helps New Zealanders make more informed decisions about their retirement savings is positive and should be embraced by the industry."

Review of default providers

The review of default providers would consider the objectives of the current arrangements, how they have performed, and the structure, number of default products, and their investment mandates, English and Foss said. 

Default funds currently have a conservative mandate and are restricted to holding no less than 15 per cent and no more than 25 per cent in growth assets.

The public would be able to make submissions on the default provider review after the discussion document is released later this year.

Body said ANZ Wealth, which manages the OnePath KiwiSaver scheme will be recommending default funds be made into lifestages funds, which automatically adjust asset allocation according to a member's age.

Context

The six current KiwiSaver default providers (AMP, ASB, AXA, OnePath, Mercer and Tower) were appointed for a seven-year term, which is due to expire on 30 June 2014.

Prior to retendering, the current arrangements will be reviewed to determine whether they remain appropriate.

Objectives

The review will set out to answer the following broad questions:

·          How have existing default arrangements performed from operational, administrative, regulatory and policy effectiveness perspectives?

·          What should be the objectives for the default provider arrangements and what are the best institutional arrangements and investment settings to deliver these objectives?

·          What is the optimal process for managing any transitions from existing arrangements?

Review process

Data sources:

–         Scan of academic research.

–         Existing KiwiSaver evaluation and performance information.

–         KiwiSaver providers (default and non-default).

–         Associated intermediaries.

–         Industry organisations and research institutes.

–         Relevant regulators and government agencies.

–         Overseas providers.

–         Public submissions.

Outputs:

–         Discussion document for public consultation released mid-to-late 2012.

–         Final decisions December 2012.

Consultation:

–         This terms of reference for the review will be published on MED’s website.

A discussion document will be released for public consultation and submissions sought. A series of open forums will be held in Auckland and Wellington to give an opportunity for stakeholders to engage with officials informally.