August 25, 2015
Since its inception in 2007, KiwiSaver has become by far the most widely-held voluntary private savings vehicle in New Zealand. There are now over 2.5 million individual members in the scheme, and three-quarters of the population aged 18 to 64 are members. Prior to the introduction of KiwiSaver, coverage of New Zealanders in occupational savings schemes was only around 15% of the workforce and on a declining trend. The introduction of KiwiSaver was motivated by concern that many New Zealanders were not preparing well for their retirement, owing to both an inadequate level of savings, and potentially excessive concentration of wealth in residential property. This is reflected in the legislative goals of the KiwiSaver Act, which are: 1. to encourage a long-term savings habit and asset accumulation by individuals who are not in a position to enjoy standards of living in retirement similar to those in pre-retirement 2. to increase individuals' well-being and financial independence, particularly in retirement, and to provide retirement benefits. KiwiSaver take-up was encouraged by Government support of the scheme in the form of direct payments to member accounts and subsidies for eligible first home buyers. To date, the direct payments have been over $5.8 billion, comprising annual "tax credits" and a one-off kick-start payment of $1,000. Given the large level of fiscal support for the scheme and the important policy purpose, annual reviews by government officials have been undertaken. In February 2015, a major summary evaluation report was published. While the report found KiwiSaver has enjoyed high take-up and was well-managed, it also found it was only marginally, at best, increasing net asset accumulation for its members. This material was drawn upon by The Treasury to develop a Regulatory Impact Statement (RIS) on KiwiSaver, and the kick-start payment in particular. The RIS concluded that "KiwiSaver is a very costly voluntary savings scheme which has not substantially increased savings despite encouraging enrolment of a large number of individuals." Given this conclusion, in the 2015 Budget the government reduced some fiscal support for KiwiSaver by cancelling the $1,000 kick-start payment. In this paper we review the evidence base used to support this policy change and suggest conditions under which, in contrast, KiwiSaver will likely lift net wealth for its members, particularly members on middle-level or lower lifetime incomes.