KiwiSaver membership, which swelled last month to 1.93 million, is poised to hit the 2 million mark by August or September, according to default provider Tower Investments in its latest report.
CEO Sam Stubbs said the growth continued despite a "sharp slowdown" in enrolments in April.
“Over the first quarter of 2012 there was a rising trend in membership uptake that peaked out in March before slumping sharply in April to the lowest level recorded, at just over 14 thousand new members, since January 2009.”
Stubbs said the relative slow down for new members occurred across all three categories of KiwiSaver enrolment methods; opting in directly through a provider, being automatically enrolled on the job; or a self-initiated enrolment through an employer. The net total membership growth rate slumped to 0.74%.
“However, based on the average growth rate for the four months ended so far this year of 17,000 new members per month being sustained, KiwiSaver net total membership should top two million in another four months or so, sometime around August or September,” said Stubbs.
“While there has been talk of soft compulsion to nudge more people into KiwiSaver membership, with the direction net total membership figures are headed, and considering how many people have chosen to opt out in the past, it becomes a moot point as to whether the cost would be justified to attract more accounts at the margin.”
Stubbs said the pre-budget announcement that there would be no changes to KiwiSaver member tax credits (cut in half during last year's budget) was a relief to investors and providers alike.
“After a period of frequent change to KiwiSaver’s rules, some stability is required to help build and reinforce public confidence in the scheme, while providers do not need more costs imposed in having to respond to yet more changes to what is basically a low-margin commodity investment product.”
Going forward, Stubbs said KiwiSavers needed to be aware of the impact of reduced savings as a result of employer contributions now being taxed (effective April 1, 2012).
“Taxation of employer contributions to KiwiSaver accounts may not seem like a big deal dollar-wise each payday to many scheme members, but over time will have the impact of a negative compounding interest rate in detracting from total investment returns.”
“Many KiwiSaver members will need to make up for the taxation of their employer’s contribution by increasing their own regular or lump sum contributions in order to reach targeted future balances in their accounts,” he said.
See Amanda Morrall article here on taxation by stealth accusation from accountants.
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