Kiwisaver influence 'insignificant'

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KiwiSaver has changed New Zealand’s managed funds industry but it has had little effect on household finances so far, a superannuation researcher says.

Wednesday, February 12th 2014, 6:00AM 1 Comment

by Niko Kloeten

Michael Littlewood, co-director of Auckland University’s Retirement Policy and Research Centre, analysed the impact of KiwiSaver on New Zealanders’ finances, based on data from the Reserve Bank.

“With 2.2 million members and more than $19 billion in assets, it seems that KiwiSaver might have made a real difference to New Zealanders’ saving habits,” he wrote in the latest edition of the RPRC’s Pension Briefing bulletin.

“However, apart from those headline numbers, we do not really know whether New Zealanders are saving more; or even whether KiwiSaver has helped to lift the aggregate numbers.”

Littlewood used two sources of data from the RBNZ: the managed funds survey (MFS) and the key household statistics survey.

His analysis covered the period from December 2003 (when the RBNZ changed the methodology of the MFS) to September 2013.

Based on the data, he concluded KiwiSaver was a “relatively insignificant influence” in New Zealanders’ financial lives, although that could change.

“In summary, KiwiSaver, despite its growth from a standing start in July 2007, still plays a very small part in New Zealand households’ financial affairs and there may be offsetting behaviour in other parts that reduce even that small impact,” Littlewood said.

Littlewood found total managed funds in New Zealand increased by 55% ($33 billion) to $88 billion during the ten-year period, with 58% of the increase ($19 billion) attributable just to KiwiSaver.

However, managed funds represented only about a third (34%) of New Zealanders’ total financial assets, which stood at $256 billion as at September 2013.

“Since KiwiSaver started, gross household financial assets (including KiwiSaver) have grown by $66.2 billion from $189.5 billion to $255.7 billion, up 35% in six years,” he said

“Of that increase, just $19 billion (29%) can be attributed to KiwiSaver. What we do not know and can never know, is whether financial assets might have grown by that $19 billion without KiwiSaver’s intervention.” 

And while financial assets nearly doubled from $139.4 billion at December 2003 to $255.7 billion at September 2013, their value relative to household incomes only increased from 1.7 to 1.88 in that time.

Managed funds actually fell as a proportion of both household assets and disposable income between 2003 and 2013, although they had improved since 2008 when the GFC hit.

Littlewood also highlighted the extent of taxpayer subsidies to KiwiSaver ($4.9 billion) and the high amount invested in fixed interest (53.6%).

“If continued, savers will probably end up at retirement with significantly lower balances but they also face an increased risk from unexpected inflation. Growth assets are normally the best protection for that.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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