Costly KiwiSaver missing its target
KiwiSaver has had little success getting poor people to save and may actually reduce national saving, a report by the Treasury suggests.
Monday, December 19th 2011, 11:12PM 
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by Niko Kloeten
The report, which used data from a national survey of 825 people by market research firm Colmar Brunton for the IRD, assessed whether KiwiSaver had helped its target population, defined as "those who would not otherwise have saved enough to maintain their standard of living in retirement."
It found a high amount of "leakage", with the proportion of KiwiSaver members outside the target population estimated to be as high as 93%.
Meanwhile, KiwiSaver only appears to reach one third of the target population, and at high cost, the report said.
"With ongoing costs of the scheme for salary and wage earners projected to total around $823 million for the 2011/12 year, the costs for each member of the target population may exceed $13,000 per year."
There was also little difference in retirement income expectations between those in the scheme and those who weren't.
About 80% of KiwiSaver members expected to have enough income in retirement to be able to meet their basic needs, compared to 78% overall and 76% among those who weren't in the scheme.
"Critically, after controlling for other factors which may affect the size of the shortfall with regression analysis, no statistically significant difference was found between KiwiSaver members and non-members," the report said.
Another finding was that most of what was saved into KiwiSaver would have been saved anyway.
KiwiSaver members said that on average they would have applied 64% of the money they are now contributing to KiwiSaver to other forms of saving and/or debt reduction had they not joined KiwiSaver.
This meant that only about one third of private contributions represented additional saving.
"While there may be some short-run increase in national saving, it appears that given the extent of public contributions through tax concessions and direct grants, the net contribution to overall saving would be marginal at best in the longer term, and may in fact reduce national saving," the report said.
"It is important to stress that this paper is based on data collected between January and March 2010, before the various changes to the scheme that were announced in Budget 2011 had taken effect.
"Further evaluation must await additional data garnered when the scheme has greater maturity. Given the importance of KiwiSaver as an element of New Zealand's retirement income saving policies, further evaluation will be highly desirable."
Niko Kloeten can be contacted at niko@goodreturns.co.nz
| « News Round Up December 19 | KiwiSaver mismatch a 'huge challenge' for advisers » |
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Comments from our readers
If they do, what if the employee goes and join KiwiSavers later on? Does the employer then reduce the take-home pay accordingly?
Once you start to talk about contribution holidays, then things start to get really messy.
I would say most payrolls haven't really got their heads around that.
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