Lessons to be learned

The main parallel is the pro-cess of auto-enrolment via employers. This is the same process the UK plans to adopt. The intention, in the UK, is that when someone starts a new job, they will be enrolled by their employer into personal accounts or a pension scheme which is at least as good and because of the inertia regarding financial matters, many will not opt out.

This theory seems to be bearing up in New Zealand where, in October 2007, only one-third of employees opted-out of the scheme*. Achieving a similar rate in the UK, assuming auto-enrolment of 12 million employees, would lead to eight million participants which would certainly be a success.

It is interesting to note the overall number of enrolments in New Zealand is above the targets which were set, but the early indication is that the number of auto-enrolments is considerably lower than was expected, and this is being compensated for by voluntary opt-ins. This seems to indicate that the job of convincing employers to “play ball” has not yet been done.

It is quite likely we will experience the same problem in the UK; it is certainly going to be difficult to steer between adopting a light-touch-approach with employers, as will be advocated by those wanting to nurture small employers, and a more rigorous enforcement approach, which is likely to be advocated by those representing consumer interests. If a light-touch-based approach is adopted, then the overall numbers of people enrolled may be lower than is intended.

One of the differences between the KiwiSaver scheme and personal accounts is that, in New Zealand, the collections are handled by the Inland Revenue. On the face of it, this would also seem to be the simplest solution for the UK, since HMRC is already dealing with employers for tax collection.

However, this may not be the panacea it appears to be. In the first place, the integration of legacy systems with new systems is problematic and significantly, in New Zealand – which has a much smaller population than the UK – it has been necessary to expand Inland Revenue workforce by some 400 people to handle this work. The implications for using HMRC for registrations and collections in the UK are therefore impractical.

Another difference between KiwiSaver and personal accounts is that while the 2012 scheme is currently set to be a vehicle for retirement savings only, KiwiSaver includes features to encourage and enable home-ownership, such as early withdrawal of funds in some circumstances. This would be an interesting enhancement to the personal accounts scheme, not least for people aged 22 to 40 who struggle to think about saving for retirement ahead of saving for their immediate futures.

While there are already some parallels and lessons to be learned from KiwiSaver, it is important to remember that it was only implemented six months ago. KiwiSaver is certainly worth keeping an eye on, as it is imperative we learn as much as we can from a pensions scheme which has already been launched. However, as with anything, only time will tell its true success.

Clare Ward is a director at Xafinity Paymaster

* KiwiSaver press release October 9, 2007 (KiwiSaver website) – this could change as employees have eight weeks to opt out