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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 5 Comments

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

Tags: KiwiSaver

« News Round Up December 19KiwiSaver mismatch a 'huge challenge' for advisers »

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Comments from our readers

On 20 December 2011 at 11:25 am John said:
36% of money going into KiwiSaver would not have gone towards debt reduction or other saving. This means overall savings in the economy have increased. There were no government contributions during the period in question, so the inference that the extra savings was paid for by Government is wrong.
On 20 December 2011 at 12:53 pm Niko Kloeten said:
Thanks for the feedback. Note - the 36% figure is only for private contributions and doesn't include taxpayer subsidies, which according to the report account for about 40% of money going in to the scheme.
On 21 December 2011 at 5:53 pm James said:
All analysis point at the wage earners. My anecdotal evidence suggests the struggling small business owners of NZ are not jumping into KiwiSaver. If you present to a team of 20 real estate agents you find the successful 10-20% are in whilst the strugglers are not. This is down to the benefits being most significant for PAYE staff.
On 22 December 2011 at 10:37 am Chris W said:
James - you should check your facts before voicing your opinion publicly. Whilst PAYE employees are eligible for employer contributions, these can be offset from their pay via the total remuneration approach (utilised by most employers). What this means is that majority of PAYE employees actually fund their own employer contributions. So the real benefit in KiwiSaver is the $1,000 kickstart (which is a one-off) and most importantly the ongoing member tax credits. The tax benefit on employer contributions is being taken away from 1 April 2012. Self-employed (i.e. your real estate agents) or not employed individuals are eligible for member tax credits if 18 or over. Unlike employees, they also have the advantage of deciding how much to contribute, if anything at all (employees are stuck contributing at least 2% for the first year). This means they can contribute $20 per week and get $10 in return from the government. I challenge you to find me a better return elsewhere!
On 22 December 2011 at 5:31 pm denis said:
@Chris W - that ain't necessarily so. Unless the employee has agreed to it in "good faith", the employer's KS contribution cannot be offset against their total remuneration. The test is to see what an employer pays someone on the same money who isn't in KiwiSaver. Do they pay them more to compensate for lost KS costs?

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.
Commenting is closed

 

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