KiwiSaver

Total KiwiSaver membership topped the 1.75 million mark in June despite a downturn in the sign-up rate, according to KiwiSaver provider Tower Investments.

 

Chief executive Sam Stubbs said that while the membership milestone was passed, “growth rates for KiwiSaver sign-ups fell after the Government’s Budget announcements of late May.”

“Anecdotal evidence indicated that public perceptions of KiwiSaver had turned somewhat negative since the Budget set out reduced Government subsidies, increased taxation, and larger employer and employee contribution minimums to be phased in for the scheme over 2012-13.”

Stubbs also said talk of potential compulsion had demotivated some people from joining the scheme “who believe they might be forced to belong later anyway.”

He said June was also a rocky month for investment markets with fears Greece’s debt problems could spark another global financial crisis, though those fears abated late in the month.

“Total net monthly growth in new membership dropped from above 1.5% in May to under 1.4% in June, with opt-in via employer and opt-in via provider leading the trend down.

“The only original KiwiSaver join method to show an increased rate of sign ups was automatically enrolled by employer, which lifted from a little over 1.4% in May to not far short of 1.5% in June.”

However, Stubbs said it was too early to tell if the June downturn in new KiwiSaver sign-up rates was a blip or “a significant turning point in public appetite for the scheme.”

“If June’s monthly membership grow rate continues for the rest of the year, there should be about 1.9 million KiwiSaver’s by the end of 2011,” he said.

Changes to the number and nature of KiwiSaver default scheme providers is “worth examining in slower time”, according to a Treasury paper on Budget 2011 KiwiSaver reforms.

The paper, dated February 18, is one of a host released by the Treasury last week relating to Budget 2011.

The paper also revealed Ministers rejected proposals for a ‘soft’ compulsion recommendation and that the Treasury was aware the changes would create “uncertainty and unpredictability which is not helpful or encouraging to individual savers.”

One of the proposals rejected by Ministers would have seen “all eligible employees who have not previously been auto-enrolled and are not already members of KiwiSaver or an approved superannuation scheme, who do not indicate in advance of the enrolment that they do not wish to be enrolled.”

The need to carefully communicate the recommendations was also highlighted, as the paper acknowledges the changes “may reduce perceptions of the stability and predictability of the scheme.”

Budget changes to KiwiSaver may make the scheme less attractive for people to join, according to Tower Investments CEO Sam Stubbs.

“Perhaps more disconcerting for potential members is that KiwiSaver’s rules have been changed again by the Government, which starts to chip away at certainty around retirement planning arrangements.”

Stubbs made the comments as default KiwiSaver provider Tower released its monthly analysis of the IRD’s KiwiSaver member count for May.

“May saw continued overall increase in KiwiSaver sign-ups, with net total membership rising 1.5% for the month to break through the 1.73 million mark,” Stubbs said.

“Opt-in via KiwiSaver provider grew the strongest at 1.8% increase, to take membership counted by that joining type to more than 860,000.

“Coming in just behind for growth rate was the automatically enrolled by employer category, which grew by 1.4% to over 640,000, and after that opt in via employer, which lifted less than 1% to 230,000.”

Stubbs said that if monthly KiwiSaver membership growth rates continue to average around 1.5% for the rest of the year, over 26,000 new members will sign up per month, taking total membership to around 1.8 million by the end of the year.

However, the Budget changes have created uncertainty around future membership numbers.

“The wild card was changes to KiwiSaver announced in the Government’s Budget on the 19 th of May,” Stubbs said.

“There was some evidence of slowdown in KiwiSaver sign-up rates over Budget month, but the most affected categories were opt in via employer and automatically enrolled by employer, and these categories may be more expressive of labour market conditions.

“Opt-in via provider would have been the category most likely to have shown up as a bellweather for public concern over the impact of the Budget on KiwiSaver, but the monthly sign up rate for May was similar to April’s.”

While Stubbs said the Budget changes may make the scheme less attractive in the short run, “its financial impacts on KiwiSaver member accounts do not flow through until 2012 in the form of taxation of employers’ previously tax-exempt minimum contributions and halving payments of the Government’s Member tax Credit subsidy.”

He said Government rule changes to the scheme could dent confidence in KiwiSaver as a vehicle for long-term savings, but “we probably won’t know for a few months yet whether the growth rate of sign-ups to KiwiSaver has been seriously impacted by the Budget.”

Despite the recent changes, Stubbs remains convinced of the scheme’s worth.

“Even with KiwiSaver becoming less generously supported by the Government, it is still an efficient, low-cost, well-regulated retirement savings vehicle.”

The government’s changes to the KiwiSaver scheme aren’t likely to put investors off it, says Ian Park, chief executive of retail banking at ASB Bank, the second largest KiwiSaver provider.

“The scheme is such a good scheme, I think it will continue to see growth and new people joining,” Park says.

He doesn’t expect the changes will prompt many KiwiSavers to take a contributions holiday.

“As more and more people are exposed to it and start to see the benefits and, I guess, see their balances rise, it gives them a lot of confidence.”

However, “generally speaking, people that are saving like to have a stable, consistent approach.”

The increase in required employee contributions from 2% to 3% of earnings won’t affect all ASB’s KiwiSaver customers.

“There’s a significant chunk of people contributing more than 2% anyway.

From that perspective, some of our customers won’t be impacted by the increase.”