2015 Budget Bright Side l Mercer's View

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2015 Budget Bright Side: Cutting KiwiSaver kick-start can boost participation, says Mercer

  • 22 May 2015
  • New Zealand, Auckland


Unfortunately, the Government could not resist tinkering with New Zealand’s retirement savings system in the 2015 Budget, once again moving the goal posts of KiwiSaver.

However, on the bright side, removing the $1000 Government kick-start to KiwiSaver will make it easier for the Government to hold an auto-enrolment event sooner, which will boost participation and lead to better retirement outcomes for more New Zealanders, says Mercer.

Commenting on the implications of the 2015 Budget for New Zealander’s retirement savings, Mercer’s New Zealand Managing Director, Martin Lewington, said “We are disappointed the Government announced the immediate removal of the $1000 KiwiSaver kick-start program. The program encouraged more New Zealanders to save for their retirement. It was easy to understand, simple to administer, and it incentivized the right behaviors.”

“Continue to change the rules and you lose trust in the system. Fail to follow through on a commitment to lift KiwiSaver coverage, with an auto-enrolment event, and you send negative signals on the importance this government places on the personal provision of a retirement income,” said Mr Lewington.

“Without an auto-enrolment event to mitigate the knock on effect of removing the kick-start program, participation in KiwiSaver could be seriously impacted.

“Our population is ageing; as a percentage of social assistance spending, New Zealand Superannuation is expected to rise from about 39% five years ago to 53% in five years’ time. We are disappointed that the Government hasn’t addressed sustainability of the retirement income system.

“We understand the economic reasoning but we question whether this is a case of short-term gain and long-term pain.

“However, on the bright side, we believe the abolishment of the KiwiSaver kick-start also abolishes the argument that an auto-enrolment exercise cannot be done due to the cost,” he said.

The costs of an auto enrolment exercise to the Government are predominantly in respect of the $1,000 kick-start provided to each new member who remains signed up – so abolish the kick-start and an auto-enrolment event becomes a lot more affordable.

Mercer’s modelling shows a 40 year old joining KiwiSaver today could expect a retirement savings balance at 65 up to 20% higher than if entry were delayed for three years. Holding an enrolment event as soon as possible would provide a significant boost to long-term savings.

“Greater coverage will lead to increased financial security for retirees, growth of the funds management industry and a subsequent injection of funds into the wider economy, it is also an important step forward in terms of reducing reliance on NZ Super” said Mr Lewington.

“NZ Super is unlikely to continue to fund an acceptable quality of living for most people, it’s equivalent to about 66% of the average wage, so it is essential that individuals are encouraged to save for their retirement.

“Now is not the time to continue tinkering as a critical mass of savings within KiwiSaver is emerging and our population is ageing. We do have to continue to review our retirement savings system to strengthen New Zealanders’ ability to save for a secure and sustainable retirement, but let’s do it holistically,” he said.
 

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About Mercer
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in more than 40 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.co.nz Follow Mercer @MercerNZon Twitter

 

 

 

 

 

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