There are no more $1000 kickstarters for new KiwiSavers. Photo / NZ Herald
There are no more $1000 kickstarters for new KiwiSavers. Photo / NZ Herald
KiwiSaver has cost the taxpayer more than $6 billion and its success in helping people who really need a boost in their retirement savings has been described as "marginal, at best" in a report released by the Inland Revenue Department.
The report is the final evaluation in a seven year assessment of the retirement savings scheme and what prompted Finance Minister Bill English to consider cutting incentives to KiwiSaver.
On Thursday English announced the $1000 kick-start would be dropped immediately saving around $500 million over the next four years.
KiwiSaver was set up in 2006 with two key objectives; 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 and to increase individual's well-being and financial independence, particularly in retirement and to provide retirement benefits.
But the report finds that its impact so far has been limited. While 2.5 million people have signed up to KiwiSaver 38 per cent are making no contributions to it.
Many of those members are likely to be children whose parents signed them up to take advantage of the now-removed $1000 kick-start.
Of those who are saving 56 per cent have money taken from their salary and wages and of those 58 per cent contribute at the minimum 3 per cent rate. But just one third of the income saved was estimated to be additional savings.
The rest is likely to be money which would have been used to pay off mortgage or other debt had it not been channelled into KiwiSaver.
It would also appear that KiwiSaver has not been successful in improving the accumulation of net wealth for its members.
"There is an argument that KiwiSaver is promoting saving for retirement more individuals now belong to a retirement scheme from which it is very difficult to withdraw funds prior to retirement.
"However, there is concern over the amount individuals are saving, particular the extent to which this is additional saving."
The report found there was a "considerable proportion" of members not contributing or on contribution holidays and said both were ways for individuals to manage the locked in features of KiwiSaver.
"The reasons for this behaviour would seem to be related to perceived affordability and major life events, which can alter priorities."
The research also found KiwiSaver has had no effect on Kiwi's asset accumulation and their overall net wealth.
"It would also appear that KiwiSaver has not been successful in improving the accumulation of net wealth for its members."
Instead it appeared to have had a negative impact although the measuring had been done over a short time and it was possible this could change over time. The report also found that KiwiSaver was only reaching around one third of the target market meaning two thirds of those who really need to save for their retirement were not doing so through the scheme.
It also delivered poor value for money with every $1 spent by the Government additional savings for the target group is estimated to be just 20c to 38c. Treasury was asked to look into how much it would save to cut the $1000 kick-start incentive.
It also looked into cutting or halving KiwiSaver's other major incentive the annual $521 tax credit but on Thursday English said this incentive would stay.
