Crunch behind savings drop-off

A tougher economic environment is being partly blamed for a slow-down in the number of people joining KiwiSaver and an increase in those who have stopped contributing money to it.

The second annual KiwiSaver evaluation report released by the Government yesterday found 1.1 million people had joined the retirement savings scheme by June 30 - the two-year anniversary of its launch - and since then a further 189,000 people have signed up.

But the rate of people joining has slowed from an average of 59,700 per month in the first year to 32,000 per month in the second.

Revenue Minister Peter Dunne said the economic environment was potentially having an impact.

"It's possible that fewer people are joining KiwiSaver at the moment due to the uncertainties in the economic environment."

The Inland Revenue Department has forecast the number of people signing up to KiwiSaver will hit a peak of 1.38 million.

Dunne said as it got closer to that figure he expected growth to slow dramatically.

But much of the growth of new members in the last year has come from people signing up their children, a move that is worrying the Government Actuary because less than 10 per cent are contributing any money to their KiwiSaver accounts.

Just over one in four people (26 per cent) who signed up in the year to June 30 were under 18, compared to 12 per cent in the first year, despite the scheme being set up to encourage workers to save for their retirement.

"There are over 160,000 members aged 17 or under.

"While this is admirable it is important to stress the need for continued savings to make the account viable in the long term," Government Actuary David Benison said in his KiwiSaver report released last week.

Dunne said more research would be done on the issue over the next year.

A lot more people have also gone on a contribution holiday in the last year.

A the end of the first year only 3280 people had stopped contributing because of financial hardship but at the end of June those on a contribution holiday had grown to 25,935 - an increase of 2000 per month.

Dunne said there were a variety of reasons why the number might be increasing including people taking a break because of the current economic uncertainty.

It was also possible some were taking a holiday and then contributing only enough to ensure they got the maximum member tax credit.

PARENTS CASH IN
* One in four people signed up to KiwiSaver in the latest year were under 18.
* The Government provides $1000 for each child's account.