'Don't give up on KiwiSaver'

Investing

Largest KiwiSaver provider reports massive drop in new enrolments after Government axing of $1000 kick-start; says Govt needs 'no-surprises' policy

24th Jun 15, 11:30am by David Hargreaves

New KiwiSaver enrolments have plummeted since the Government's surprise Budget decision to immediately axe the $1000 "kick-start" benefit for new members.

The biggest KiwiSaver provider, ANZ Investments, said that since last month's decision its enrolments had dropped by more than 50%.

While ANZ wouldn't provide specific figures, citing commercial confidentiality, Inland Revenue Department statistics indicate that prior to May this year, the number of new KiwiSaver members industrywide was growing by around 15,000 members a month.

ANZ has 26% market share of KiwiSaver, so extrapolating those figures would suggest ANZ was getting something close to 4000 enrolments a month - therefore in the latest month the figure could be around half that, IE about 2000.

ANZ Wealth New Zealand managing director John Body called for a future "no-surprises" approach from the Government on any further changes to the scheme.

“More than 2.5 million New Zealanders have invested in KiwiSaver. It’s clear that any changes to the scheme are likely to make people uneasy.

“We need a no-surprises approach here so people don’t lose confidence in KiwiSaver because it’s important to the whole country that New Zealanders save for their retirements.”

Labour’s Finance spokesperson Grant Robertson said National seemed "hell bent on destroying New Zealand’s saving culture".

“This is a huge backward step New Zealand’s savings rate is far too low and KiwiSaver saw a big improvement in our savings so this makes no sense.

“National claims the policy saves more than $500 million over four years. That means 500,000 fewer new savers who won’t sign up to KiwiSaver as they don’t get the kick-start.

“Labour is committed to the KiwiSaver scheme we started. We believe a strong KiwiSaver is vital to giving New Zealanders security and dignity in retirement,” Robertson said.

ANZ's Body urged the public to "not give up" on KiwiSaver because of the loss of the kick-start benefit for new members.

It would be extremely short-sighted for people to give up on KiwiSaver just because they didn’t get the $1000 kick-start incentive, he said.

“KiwiSaver remains an excellent retirement savings vehicle, with a lot of benefits for members.”

But he conceded the removal of kick-start had hit people’s confidence in the nation’s retirement savings scheme.

“In total, 62% of people who have not yet joined KiwiSaver say they are now less likely to join the scheme because of the scrapping of kick-start.” (Based on ANZ survey of 1200 people, conducted in early June 2015.)

The ANZ survey also found that around 40% of people were less confident about the future of KiwiSaver as a result of the change, with 52% of people saying they were concerned the Government would make other changes to KiwiSaver in the future that would affect their savings.

'Just a temporary drop'

Finance Minister Bill English later told reporters the drop was likely to be temporary while savers worked out the bulk of the subsidies from employers and the Goverment were still in place.

"The core of this scheme has been the same since the day it started and that is auto-enrolment, that is you are automatically tipped into it when you take up a new job, and the ongoing Government subsidy and the matching employer subsidy. Those elements will always be part of Kiwisaver," he said.

"We didn't really know whether there would be a significant drop off and the advice we had when making the decision was in the long run it wouldn't make a significant difference because the incentives in the scheme with the employer subsidy and the Government subsidy are pretty strong."

Prime Minister John Key said in Parliament on May 26: "The removal of the $1,000 kick-start contribution will not make a blind bit of difference to the number of people who join KiwiSaver."

(Updated with comments from Grant Robertson, Bill English and John Key)

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

28 Comments

by Simon | 24th Jun 15, 12:13pm 1435104835

ive just opted out of it, or on a 'holiday' for 5 years as they put it.

65 is most likely going to be closer to 70 by the time I get their, and Ive already got property and the other methods of getting it out early appear ridiculously difficult. Rather use the extra income to service more mortgage debt at 4.99% to buy high yeilding palmerston north real estate to rent to the international students flooding in

by Taxman | 24th Jun 15, 3:18pm 1435115892

Just because the age of entitlement to super might change doesn't mean the kiwisaver age of entitlement will change. It is extremely unlikely the goverment would ever change kiwisaver entitlement. I imagine there are a whole load of legal issues with changing it - for example it the kiwisaver contract is very clear - you can withdraw at 65.

by Austin Fisher | 24th Jun 15, 3:38pm 1435117110

I'm afraid you are mistaken there. You are entitled to KiwiSaver money when you are eligible for NZ Super.

http://www.kiwisaver.govt.nz/new/about/how/

by a37 | 24th Jun 15, 6:56pm 1435128986

I see that Section 4 of the KiwiSaver Act 2006 states that a person can withdraw funds on or after "the date on which the member reaches the New Zealand superannuation qualification age". I had thought I could withdraw the funds at the age of 65 regardless of the superannuation entitlement age, but clearly that's not correct.

by cowboy | 24th Jun 15, 12:34pm 1435106060

Re: headline. The government will cripple Kiwisaver more and more... this _really_ isn't a surprise and you were all told when the system was set up.

And it was screamed loudly and repeatedly that this is why _compulsory_superannuation_ must NEVER occur. ie that as soon as the good ship "Compsuper" get underway the government and industry rats would be gnawing frantically at any potential value.

by KH | 24th Jun 15, 1:44pm 1435110275

They need to move to compulsion in Kiwisaver and immediately stop the "opt out" options. Having said that I never saw the sense in government contributions at all. And the contribution needs to step up to about 15% to give people enough cash in their old age.
Once enough people are in and builidng those assets for themselves we could have sensible debate about the end of national super.

by Hamish | 24th Jun 15, 2:15pm 1435112123

Put a contract in front of me that I can assess and I'll consider your proposal. Everytime the government changes any terms, you should be given the option to cash out there and the.

by Taxman | 24th Jun 15, 3:20pm 1435116020

I am fine with compulsion as long as there is a self-management option i.e. if you wanted to use a secured fixed interest device or a bank rather than a kiwisaver provider.

by Mark L | 24th Jun 15, 6:13pm 1435126390

yeah and.- as in Australia -, make the employers not employees pay the 12% super contribution on top of your current wage.

by badmonkey | 24th Jun 15, 7:58pm 1435132687

Can't tell if you're being sarcastic. Because it is the employers actually funding this, right?

by cowboy | 24th Jun 15, 7:43pm 1435131807

you talk rubbish

by badmonkey | 24th Jun 15, 7:47pm 1435132048

Maybe KH you could move to the USSR and have the State take complete control of your finances. Bound to work out well for all isn't it. Oh wait.

Certainly you wouldn't want anything approaching the polar opposite, e.g. the evil United capitalist States. Where there is no government managed retirement scheme with real tax advantages, owner control, and a history of not destroying the public's confidence. Oh wait again.

by KH | 24th Jun 15, 8:46pm 1435135606

Badmonkey. Have you noticed we have compulsion now? And if you have been a huge taxpayer all your life, a very minimal return from national super for all your effort.
As for the USA, try to remember what happened to the Exxon employees and their 'pension'.

by badmonkey | 25th Jun 15, 4:03am 1435161784

The point is, the NZ KiwiSaver is poorly conceived, and has so far been run as badly - primarily because of the constant tinkering and erosion of confidence.

The "government contributions" are are styled as tax credits, which is supposed to constitute the incentive to contributing. But it is nothing on the tax-free status of American 401k accounts, where gross moneys go into the account and tax owed is delayed until withdrawal when eligible. So investments are given a powerful amping of compound gains in the meantime. And the government doesn't have a history of constantly screwing with it and moving the goalposts.

The lack of control and absence of real investment choices, racketeering of a closed market by over priced local banks and fund managers, injustice of changes in the things like the $1K kickstart, mismatching of the home start grant with bubbling Auckland property prices, is just so much more ineptitude on top of the typical NZ small country political cock-up.

by KH | 25th Jun 15, 8:00am 1435176011

We can agree badmonkey. The usual kiwi cockup is happening and in my view because we have a planning horizon on kiwisaver of about three months. It's a kiwi culture.
But stabilising it is a quite available option.
Revert to establishing universality
Recommence to progression to say 15% gross contribution.
Cease all the opt outs and exceptions.
Also. I see no need for any govt contribution or tax. (Thats a new idea. No tax involvement)
Also. Once a reasonable balance the use of more than one provider (risk reduction)

by jamesy | 25th Jun 15, 8:18am 1435177085

A 401(k) plan is not without drawbacks:

- It is linked to your employer

- Employers are not required to match your contribution. Although, the KS matching has on occasion happened in lieu of a pay-rise.

- The tax status could be a disadvantage if the tax rate rises significantly by the time you start drawing down. But yeah, this may be a minor risk compared to the benefit of compounding returns.

Don't disagree with you about absence of investment choices though, and I think the withdrawal of the kickstart is a screwup of the same ilk as National's decision to stop contributing to NZS.

by badmonkey | 25th Jun 15, 4:27pm 1435206436

It's a fool who thinks that their entire remuneration package (including KS contributions) is not the $ that's analyzed by employers. The 3% from you and 3% "free" from the employer is just a con trick to try to distract the employee that fully 6% of their income is disappearing into a heavily restricted and unreliable government scheme. If they don't do that in the US then it's more honest and transparent.

by KH | 25th Jun 15, 5:09pm 1435208942

I am an employer and having an employee in kiwisaver costs me 3% more. And I am happy about that.
My view would be that somebody who chooses not to have an extra three percent subsidy from me is too dumb to work for me. Still got a few, but it's diminishing.

by cowboy | 25th Jun 15, 7:47pm 1435218446

As an employer you just pay them the 3% that you're currently giving to Kiwisaver to pay the Kiwisaver management people.

by badmonkey | 25th Jun 15, 10:02pm 1435226573

So you are just generously giving them 3% extra, out of your bottom line?

Come on. You're fooling yourself as well as the employee.

That's a cost that will, even with the best of intentions on your part, will force a collision with accounting reality at some point. Your shareholders are making less return for the same risk meaning reduced value and lowered likelihood of future investment, your profit margins are thinner with less room for other cost increases, you have reduced ability to hire other staff perhaps with better skills, etc. You will end up delaying pay rises beyond when you could have otherwise made them, or any pay-cuts or lay-offs will be made sooner than otherwise necessary, which will sooner or later factor the 3% into the total pay package as I outlined above whether you admit it or not.

Maybe the smart ones are trying to avoid a fixed portion of their total possible remuneration being forced into poor investments with limited control, are puzzled by your reticence to see the financially obvious, and might not want to work for a boss who wouldn't just pay them directly 100% of their earnings?

by KH | 26th Jun 15, 7:59am 1435262379

Yep badmonkey. I give em 3% if they want.
As for it coming off my bottom line you need to think differently. Happy, rewarded, employees work hard and smart for your business. For me thats a huge contribution to my bottom line. Reduces my management stress and time, and has built a strong band. Value plus for me.
Do try this at your place.

by Mitz | 24th Jun 15, 8:17pm 1435133845

Our accountants in manukau suggested that kiwisaver was a good savings option for our new born, its a pity that we missed out on the kick-start just by a week! i totally agree with the no surprises approach by government in future.

by rjn1 | 25th Jun 15, 8:04am 1435176249

Mitz, your situation sums up perfectly the reason there has been a drop-off in new memberships in the short term (hard luck, by the way). I'd think the likelihood of your child eventually joining the scheme (perhaps when they get their first job) is largely unchanged, but the timing is skewed. I agree with the PM's comment that axing the kick-start won't make a blind bit of difference to kiwisaver membership IN THE LONG RUN (unfortunately he left off that important qualifier).

by Bernard Hickey | 25th Jun 15, 7:49am 1435175353

Updated with comments from Bill English that any fall in enrolments was likely to be temporary.

by broke | 25th Jun 15, 8:05am 1435176343

Mitz example hits the nail on the head. The drop in enrolments are from the mums and dads who were locking their kids into the scheme for the $1,000 before they are old enough to make a choice for themselves. The "temporary" fall will last for around 18 years.

by badmonkey | 25th Jun 15, 4:34pm 1435206866

There was little disadvantage to the free $1000. It's actually a huge amount of taxpayer granted wealth for a newborn, and the scheme at least protects against ill-advised early withdrawals. Invested aggressively, if past long term stock market returns of ~10% can be maintained, for an inflation adjusted net CAGR of about 7.5%, then that's $158,000 of 2015 dollars by the time that child reaches retirement at 70.

I certainly wish someone had put $1K into the right kind of account when I was born!

by Austin Fisher | 25th Jun 15, 10:23am 1435184624

Once the $1,000 kickstart went away, so did the retail over-the-counter opportunity for banks when signing up customers' children. While a child can still have a KS set up for them, in all practicality, the parent will have to pay "real" money into it. When it cost the parent literally nothing, it was a no-brainer.

Real growth will now come from the automatic employer enrolments, particularly if soft compulsion comes in.

by badmonkey | 25th Jun 15, 4:37pm 1435207065

Under-18s are not eligible for the tax credit, so there is zero benefit of having a KS account for your child now that they dumped the $1K kick start. If you want to finance a retirement fund for a kid, better to merge the allocated $ with your own more efficiently managed and better returning investments, and gift over the matured sum at 18 (into KiwiSaver or whatever's replaced it so they don't blow it on cars and girls).