There is a problem with KiwiSaver.
It does not seem to be achieving its objective.
Auckland University lecturer Michael Littlewood recently argued that the increase in KiwiSaver funds last year was mostly due to account swapping and government spending, rather than new savings.
KiwiSaver was set up under the 2006 ‘KiwiSaver Act’ in reaction to a perception that New Zealanders were failing to save enough for their retirement.
The Act specifically targeted “individuals who are not in a position to enjoy standards of living in retirement similar to those in preretirement.”
In other words, people who did not have a savings plan for their old age.
But four years on, the scheme appears to have had little impact on saving habits.
In fact, of the $3.3 billion increase in KiwiSaver funds last year, Dr Littlewood says only $700 million came from new savings.
Treasury found a similar trend in its evaluation of the scheme last year.
Two thirds of those enrolled in KiwiSaver were ‘non-target’ members.
The amount of funding ending up with those in the non-target group was estimated at 93%. One third of members who did fit into the target group was estimated to have cost $13,000 each. This led Treasury to say, “The long run effect on net national savings appears to be marginal at best.”
According to Treasury, KiwiSaver members are overwhelmingly well off to save.
Meanwhile, those who cannot afford to be included, or choose to opt out of the scheme, still subsidise KiwiSaver funds through their taxes.
In 2011, the Savings Working Group outlined several ways to improve the scheme, including tweaking some of the incentives to encourage people to join.
They also recommended financial literacy classes become a compulsory part of the school curriculum, recognising that the problem is not simply to do with incentives, but also to do with recognising a need for savings at all.
KiwiSaver was set up to encourage more New Zealanders to save for their retirement. So far, it seems to have failed to do so—that makes the $600 million a year spent on remaining subsidies difficult to justify.
We must try some other avenues to improve our savings culture.