KiwiSaver drain on Government coffers

Government's contribution to KiwiSaver balances has been “substantial”, a new Treasury report says.

Thursday, September 24th 2015, 6:00AM

by Susan Edmunds

There is now more than $27 billion invested via the retirement savings scheme and it has more than 2.5 million members.

But the report by Treasury analysts says it is hard to identify the amount of new saving created by the scheme, and what has just been transferred from other investments.

It says best estimates are that between 25 per cent and a third of the saving in KiwiSaver is “new” money that would not otherwise have been invested.

“The evidence suggests that the effect of KiwiSaver on increasing net wealth is poor," the report says.

But it says the amount the Government has contributed in getting the scheme off the ground is significant.

Until this year it offered a $1000 kickstart to new members. Between KiwiSaver's launch and 2011, it offered a member tax credit of $1042 to members who contributed that amount. Since then, it has offered $542 to people who save $1042 in a year.

“In June 2008, the Crown’s contribution to KiwiSaver represented over half the total payments to providers. However, this has fallen to just over 20% in June 2013. The main fall in Crown contributions seen between 2012 and 2013 resulted from the halving of the member tax credit as of July 2012," the report said.

In 2014, the Government's contribution represented about three-quarters of a billion dollars, out of contributions of just over $4 billion.

A Treasury report that argued KiwiSaver was not making a significant impact on savings rates was part of the reason cited for the Governmenrt removing the $1000 incentive at this year’s Budget.

Since then, many providers have reported a significant drop in the number of new enrolments.

David Boyle, of the Commission for Financial Capabiltiy, said the cost of the Crown’s contributions to KiwiSaver was something that was worth looking at.

But he was unconvinced the latest report would be used as an argument to cut member tax credits completely. “The cost to the Crown going forward is going to continue to fall as a total percentage of funds growth, The investment has been made.”

Boyle said the report’s prediction of $70 billion under management by 2020 was probably conservative.

The report also pointed out that KiwiSaver investments are heavily weighted towards income assets relative to growth. That is in contrast to other countries with similar schemes, where investors have more money in higher-growth assets."[This] could lead to less than optimal future retirement incomes."

Tags: Commission for Financial Capability KiwiSaver