by Rob Hosking
“We actually put them in the report last, but we end up talking about them first because that’s where the debate is – where the free lunch is to be had,” Harris said.
However the focus on “sweeteners” – ways to encourage employees to stay in workplace savings schemes – is putting the cart before the horse, he says.
“At the end of the day it is the horse who has to do the work.”
However a theme of the conference was whether employees would stay in such employer based schemes when they are enrolled, and whether there should be sweeteners, or “lock in” provisions, to encourage them to stay.
The report – which is not yet government policy – recommends that employees be automatically enrolled in a workplace savings scheme selected by the employer. If the do not want to stay they have to “opt out”.
Various sweeteners, such as a kick start payment, or bonus payments when savings targets are met, are canvassed in the report. Tax incentives were kept outside the group’s ambit.
Similar schemes overseas have struggled to get going – and they have tended to have either tax incentives or a compulsory employer top up – or both. They also have “lock in” provisions, as a trade off for the employer top up.
There is also the risk to existing schemes, which have not had the benefit of sweeteners. They may close and migrate employees to new schemes – but many savers, in the transition, may take their cheque and put it elsewhere.
“People may take the opportunity to spend it on a trip to Australia or new car or whatever,” Investment Savings and Insurance Association chief executive Vance Arkinstall said.
Arkinstall also warned of talk of putting more rules around various options and making the whole process too labyrinthine.
“We’re hearing more and more talk of rules and opt outs and opt ins, sweeteners, and the like. I start to think, look, if there’s a real problem, let’s not muck around, let’s take the whole step to compulsion. That’ won’t happen of course but this is just fudging around the edges.”
And he warns that the net result for the industry could be “we end up with a low cost, low volume product, and cannibalisation of the existing schemes. And then three or four years down the track people decide they want out of the schemes anyway.”
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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