BUDGET 2012: 'A good one for a KiwiSaver'

A default KiwiSaver provider says changes announced in the budget keep the "spirit of the scheme" intact.

The changes include delaying the planned auto enrolment in KiwiSaver because the cost would put the "surplus at risk", says Finance Minister Bill English.

Because of government contributions and kick-start given to new investors, auto enrolment - with an opt-out option - would cost up to $514m over four years.

Default KiwiSaver providers will also be reviewed, and they will be subject to more stringent rules requiring them to report their performance every quarter.

There are six default providers - AMP, ASB, AXA, OnePath, Mercer and Tower - and new investors are assigned to one if they don't actively choose a fund.

The changes will come into effect on April 1, 2013.

A change announced in last year's Budget - that minimum contributions will increase from 2% to 3% - will also start on that date.

CEO of Tower Investments, Sam Stubbs, told NBR ONLINE delaying the introduction of auto enrolment is neither good nor bad.

He says with 15-20,000 people signing up each month, there may be less of a need for auto enrolment in two years time anyway.

However, head of Mercer New Zealand - another default provider - Martin Lewington, says delaying auto enrolment is disappointing.

"It's a fairly short-term saving - $500 million pales in significance in the potential shortfall in superannuation 20 or 30 years out."

He says in terms of the government's tax take, the sooner they get people saving, the power of compound returns works in their favour.

"There is $500m over four years that would have been invested, earning, hopefully, some pretty good returns, and those KiwiSavers would be paying tax on those returns," he says.

As for requiring default funds to provide quarterly reports on their performance, Mr Stubbs says that is a positive thing.

"It is going to be the second most important vehicle for people's savings after their house. So people should know quarterly how their funds are performing.

"It's taking KiwiSaver disclosure and reporting to a level that people should expect, given it's their primary savings vehicle."

He says the current disclosure guidelines were fine when the scheme was newer and smaller, but now it has grown to a point where disclosure needs to become more frequent.

Mr Stubbs says it is not surprising the governement has also announced a review of default KiwiSaver funds.

"I'm very confident the default providers have done what they were designed to, which is act as a temporary parking lot for people while they made up their own minds about their providers and funds."  

Mr Lewington says that overall the changes will have a positive impact on the scheme and providers. 

"The government has not really tinkered with KiwiSaver. They've actually strengthened it with the disclosure rules, and it looks like there is going to be a pretty rigorous review.

"For me, they get a pass mark."