The Financial Markets Authority's (FMA) annual KiwiSaver report yesterday revealed a sharp increase in withdrawals and a slump in new member numbers in the wake of the Government's ramped up HomeStart subsidy for first home buyers and its Budget 2015 decision to remove the NZ$1,000 'kick-start' for new members from last May.
The report for the year to March 31 was the first showing the first year's effects of the two policies that started on April 1 and May 21 last year respectively. It showed the number of new members collapsed 41% to 146,000 from 246,000 in the year to March 2015, contradicting John Key's comments in Parliament on May 26, 2015 when he said: "The removal of the $1,000 kick-start contribution will not make a blind bit of difference to the number of people who join KiwiSaver."
At the time Key cited "formal advice from the Inland Revenue Department" for his view, but subsequent documents obtained under the OIA showed IRD and Treasury said the policy would lead to lower KiwiSaver enrolments among the self employed and children. Key's office subsequently pointed to a cabinet paper which said the change would have only a "limited" impact.
ANZ reported its KiwiSaver enrolments fell more than 50% in the first month after the May 2015 announcement, but this was downplayed by Key and Bill English at the time.
"There might be some temporary effect there," English told reporters in Parliament. See our June 25, 2015 Hive News for more on this.
The Government saved a substantial amount by removing the kickstart and because fewer members joined. The Government's contributions to KiwiSaver funds fell by 21.4% or NZ$198.5 million in the year to March to NZ$728.3 million.
First home buyers pump KiwiSaver funds into housing
The Government's Election 2014 policy of doubling the size of Government subsidies for first home buyers who withdraw their savings from KiwiSaver also had a major impact on the scheme, the FMA report showed. A couple could receive a subsidy of up to NZ$20,000 under the policy that applied from April 1 last year, and they could withdraw all of their KiwiSaver funds except for the Government's NZ$1,000 Kickstart.
The FMA reported the number of KiwiSavers withdrawing to buy their first home rose to 31,368 from 14,584 the previous year, and they pulled out NZ$496 million in the year -- more than double the NZ$214 million pulled out the previous year. The Government spent NZ$78.3 million on KiwiSaver HomeStart subsidies in the 2015/16 year.
Treasury warned against the doubling of subsidies in 2014, saying it could undermine the Reserve Bank, force an early Official Cash Rate hike and push up house prices. Here is the Hive News report on that from August 24, 2014.
House prices have risen 22.2% since the April 1, 2015 doubling of the KiwiSaver HomeStart subsidies, partly fueled by the increased buying from first home buyers.
Retirees pull out NZ$513 million
The money being pulled out of KiwiSaver by retirees also rose substantially during the year, rising 25% to NZ$513 million, although the numbers of retirees leaving was unchanged at just under 21,000. There are also 88,242 people over the age of 65 who remain in the scheme, suggesting not all those of retirement age are pulling their money out.
There was also a 51% increase in withdrawals due to financial hardship to NZ$65 million during the year.
However, the total funds under management continued to rise, hitting NZ$33.8 billion at the end of March, up from NZ$29.5 billion a year ago. Investment income contributed NZ$1.3 billion of the increase, with employee contributions of NZ$3.2 billion and employer contributions of NZ$1.6 billion. Of the 2.6 million members in the scheme at March 31, only 1.5 million were still active contributors, with 1.1 million not contributing any more.
Auckland housing subdued in September
In the first report of September house sales, Barfoot and Thompson reported house sales rose to 1,051 in September from 1,003 in August, but were down 22.6% from 1,358 in August last year. The median residential price was unchanged at NZ$850,000 between August and September, but was up 7.5% from a year ago. Barfoot Managing Director Peter Thompson said the Reserve Bank's third round of LVR restrictions and "perceptions that the market is fully priced" had restrained activity in September.
"The market has continued the trend evident since July of slower price increases than has been experienced in the past few years. This trend has been strong enough to resist the lift normally experienced by the market with the arrival of Spring," Thompson said.
However, listings remain tight. New listings fell 10% to 1,536 in September from August and were down 20.8% from September 2015. Just 7.7% of the sales were of properties under NZ$500,000.
Households, tradies buying SUVs and Utes...
In another sign of strong business and consumer confidence, the Motor Industry Association (MIA) reported a record-high 13,884 new vehicle registrations in September, up 11.3% from September 2015 and only just below the all-time record high for any one month's sales of 13,983 set in July 1984 after the end of import restrictions.
Nine of the top 10 models sold were either SUVs or utes, with the Ford Ranger and Toyota Hilux the two top selling vehicles ahead of the Toyota Corolla, Holden Colorado, Mitsubishi Triton, Hyundai Tucson, Kia Sportage, Toyota RAV 4, Nissan Navara and Holden Captiva.
"Record strong immigration, high levels of economic activity in Auckland and elsewhere and record low interest rates are combining to give consumers and business confidence to purchase big ticket items," said MIA CEO David Crawford.
In another indication consumers are keener on spending than saving, BNZ and Marketview reported that online retail sales rose 17% in August from a year ago, including sales from local online sites rising 20% from a year ago.
In other economic and financial news...
Reserve Bank Assistant Governor John McDermott commented at macroeconomic policy meetings in Melbourne yesterday that "communicating uncertainty is not without challenges." His published comments did not include any comments on the outlook for the OCR.
Further to my earlier pieces on new Reserve Bank Board Chair Neil Quigley writing his own assessments of monetary policy for the board, the Reserve Bank said non-executive directors have been writing commentaries to assist the Board’s MPS assessments since the early 2000s and Quigley has been the non-executive director writing them on the quarterly Monetary Policy Statements since June 2010.
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