Does KiwiSaver increase savings?
The Herald reports on a study done on KiwiSaver.
The research suggests that only 9% to 19% of money put into KiwiSaver is new savings, as most of the money being saved was just shuffled from other forms of savings.
If the correct figure is at the lower end of 9%, then that is less than the admin costs and fees, which would mean that KiwiSaver is actually lowering the overall savings rate.
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Tags: KiwiSaver
April 18th, 2008 at 8:23 am
Oh dear! So Cullen’s “legacy” to New Zealand is likely to become a millstone around our collective necks.
April 18th, 2008 at 8:25 am
Another unintended consequence of the socialist government. I joined up Kiwisaver this week and the money into Kiwisaver is a straight diversion from other investment vehicles. I thought I was a minority – but I turn out to be in the majority (as most National supporters currently are)
April 18th, 2008 at 8:25 am
To be fair it would be expected that in the first year a lot of KS would be transfered savings because the deal is so good. A better measure would be the percentage of new savers as that will be the number that is needed to predict savings growth accurately. Personally, I’d rather see the government give me my tax back directly rather than tell me what to do with it.
April 18th, 2008 at 8:34 am
On no, my KiwiSaver piggy bank has a deflating bug, so much for the sullen porker that promotes the insanity.
April 18th, 2008 at 8:36 am
Hard to understand the logic of the Herald article. Are they saying that other forms of saving don’t have admin costs and fees? I was putting money into an AMP fund for many years and stopped this as the rate of return was no higher than putting the money into the bank (once all the admin costs and fees were taken out by AMP).
Also Kiwisaver has a government contribution and an employer contribution, which is all money that is saved by an individual rather than just ‘transferred’ savings.
April 18th, 2008 at 8:57 am
“Also Kiwisaver has a government contribution ”
Government contribution? Isn’t that really just contribution from productive businesses, by way of taxation?
April 18th, 2008 at 8:58 am
Rocket Boy, it seems to me they are saying that Kiwisaver is not the silver bullet for encouraging saving that it was touted as.
If all it is doing is encouraging the people who are already saving to take advantage of a tax payer and employer contribution … well. Ideally it should be sufficient of an incentive for people who are not currently saving to start saving, enticed by the top ups from tax funding and employers.
I wonder if the reality of it is simply a case of Kiwisaver making it more difficult to make ends meet. I know that we as a family cannot subscribe because to do so would mean we’d be over budget every month.
April 18th, 2008 at 9:13 am
Roark’s point is important, likewise I wonder if the timing of this study isn’t a little premature (though nevertheless useful). There was always going to be some displacement in any transition, what matters is how it develops overtime and grows.
April 18th, 2008 at 9:16 am
The other advantage that Kiwisaver has is that it is hard to pull the money out. This benefit to long term savings is not mentioned by the Herald.
Funny how one of the competitive advantages that Australia has is the huge amount of money that they have saved in compulsory retirement funds (and thus available for investment) and when the government implements something similar here is seen as having little additional value.
April 18th, 2008 at 10:11 am
Have to agree with Pascal. I’ve heard of a small company with regional branches where KS uptake has been very low in Auckland (1 in 10 staff) but higher in other centres (1 in 4 staff) because the Auckland people are stretched pretty thin and the contributions would take them under the line.
April 18th, 2008 at 10:13 am
i know its anecdotal and maybe not representative of all of NZ, but i have signed up at least 100 people into kiwisaver and the vast majority have not taken the money away from other savings, they have taken it from spending.
many are using it as a chance to get governemtn and employer funding while also putting more into their mortgage (not that any of them were paying extra now, so this has been a catalyst to make them think about their finances).
for me its that it actually gets people thinking about saving and making a decision to do something.
and the people i have been seeing are from a wide array of occupations etc. from Supermarket checkout staff, to bicycle salesmen, to graphic designers to business owners. they are all about the same and have typically been saving very little and kiwisaver will be more saving than they used to do. sad but at least now they are doing something.
AL
April 18th, 2008 at 11:29 am
Simple solution to low savings levels AND the popularity of property as investment/speculation: abolish tax on interest earnings.
DUHHH. DUHHHH. DUHHHH.
April 18th, 2008 at 11:45 am
Cant speak for anyone else but in my case its new savings Im putting in 8% my employers putting in 8% and my wife is putting in 8% of her self earnings.
I wish this scheme had been around 35 years ago as my generation would now have more than adequate retirement savings and more of NZ business would be owned by NZers rather than offshore.
IMHO in 30 years time the Socilaists will be fondly remembered for introducing KiwiSaver And this come from one of their biggest critics.
April 18th, 2008 at 11:45 am
“Funny how one of the competitive advantages that Australia has is the huge amount of money that they have saved in compulsory retirement funds (and thus available for investment) and when the government implements something similar here is seen as having little additional value.”
Yep, thanks to their forward-thinking super saving scheme Australia now has one of the highest “net worth per capita” figures in the world – so how is this a bad thing?
Also worth noting is that kiwisaver has only just gotten up and running, so it’s going take a few years before everyone who’s going to come on board, finally does. Also, the employer contribution only kicked in at the start of April (adding an extra 3.6 billion per year in savings). Presumably, this study doesn’t take this into account.
April 18th, 2008 at 11:47 am
“Simple solution to low savings levels AND the popularity of property as investment/speculation: abolish tax on interest earnings.”
Spoken like a true plutocrat.
April 18th, 2008 at 11:51 am
“Simple solution to low savings levels AND the popularity of property as investment/speculation: abolish tax on interest earnings.”
Well, Labour’s Norman Kirk did introduce a similar scheme, though National’s Muldoon abolished it, and squandered its proceedings with an election-buying lolly scramble (probably tax cuts). Sound familiar?
April 18th, 2008 at 12:04 pm
Why *not* abolish the tax on interest earnings? Is the tax money used to pay for something specific or just part of the budget?
April 18th, 2008 at 12:20 pm
“Why *not* abolish the tax on interest earnings? Is the tax money used to pay for something specific or just part of the budget?”
Because NZ is already one of the most inequitable societies in the developed world, and introducing that would make it even more inequitable – and all the social problems that accompany inequality would intensify. See my blog for just one example.
http://rogernome.blogspot.com/2007/11/link-between-imprisonment-rates-and.html
April 18th, 2008 at 12:21 pm
Speaking for myself
We spend what we have to spend then save/pay off mortgage with the rest
I am diverting what I would pay off the mortgage into Kiwisaver
Having said that though I am still marginally in favour of the general idea of it
April 18th, 2008 at 12:26 pm
Doesn’t kiwisaver do that anyway roger nome? Those who save, can, and are rewarded. Those who can’t, get diddly squat, unless they come under WFF. Perhaps Kiwisaver exacerbates to a lesser extent?
Well you can get something called ‘mortgage diversion’ emmess, but may or may not apply to your situation.
April 18th, 2008 at 12:28 pm
I’m one of the authors of the study. In response to your comments, I’d like to address 3 questions:
1) Is more saving good for now?
Grendel, your 100 odd clients may be contributing to the 9-19% new savings that we found.
But don’t you ask if more savings is better for them?
We found that the new savers are more likely to be poorer than the “reshufflers”, and given that their current income is relatively low and that NZ Super payments are so generous, they shouldn’t be saving at all.
Take an example:
You are living a student life on 20k/year. Your nanny says that if you only spend 19k and save 1k, she’ll give you 2k but you can’t touch the 3k until 10 years later. You want to catch the freebie so you save 1k. But you anticipate that in 10 years you’ll be on an executive salary of 150k. Did setting aside 1k make you better off?
No, you would be much better if your nanny gave you 2k to spend when you are a student.
2) Is more saving good for the future?
Professor John Gibson commented in a Dominion Post article on Tuesday that
“KiwiSaver is not about saving for retirement — it’s about giving a tax cut to Kiwis that they can’t spend until they retire.”
Dr Cullen’s been saying that if you *give* people tax cuts now, they would spend, and that would be inflationary.
I don’t subscribe to the theory of tax cuts being inflationary. But if Dr Cullen truly believes so, shouldn’t he also think that KiwiSaver will cause inflationary pressures in the future, when today savers withdraw their savings?
Remember you can’t eat KiwiSaver, you can only eat goods and services. You can save heaps now but if young people in the future don’t work, your enormous KiwiSaver balances will be useless. Living standards of the aged are better addressed by policies that promote productivity than those that promote savings. Look what has happened to NZ productivity:
http://gallery.lv5.org/Econ/productivity
3) Is Super Guarantee scheme what makes Oz a richer country than NZ?
Rocket Boy, don’t be so enthusiastic about Australia’s compulsory workplace saving scheme. Look at this
New Zealand
http://gallery.lv5.org/Econ/nz
Australia
http://gallery.lv5.org/Econ/aus
US
http://gallery.lv5.org/Econ/usa
Other questions:
The administration and compliance costs of KiwiSaver
Rocket Boy, on top of the fees you pay your AMP fund provider, enormous costs will be required to collect taxes from David Farrar and distribute it back to David Farrar’s and other’s KiwiSaver accounts and to make sure that myriads of rules are followed.
And this already excludes the so-called deadweight costs of taxation, which Treasury conservatively estimates to be about 20% of the taxes raised.
Timing of study
Ironically, the estimates from “pre-mature” are consistent with Treasury forecasts. Treasury estimates that KiwiSaver will decrease national savings.
See Budget Economic & Fiscal Update 2007, the table at the end of page 79 http://www.treasury.govt.nz/budget/forecasts/befu2007
Does saving cause growth?
As a small open economy, if NZ doesn’t save enough, it can borrow to invest. If it can’t grow, it’s because it has an investment problem, not a saving problem.
This saving good, spending bad, exports good, imports bad stuff is all fallacious. People save to spend, people know best when best to save/spend for themselves. Why do government planners think they know better than ordinary people what’s good for them?
April 18th, 2008 at 12:39 pm
“Doesn’t kiwisaver do that anyway roger nome? Those who save, can, and are rewarded. Those who can’t, get diddly squat, unless they come under WFF. Perhaps Kiwisaver exacerbates to a lesser extent?”
Yep – I didn’t say that kiwisaver is perfect. Just that it’s better than making earnings on interest tax-free.
April 18th, 2008 at 5:56 pm
roger – why is
April 18th, 2008 at 5:57 pm
roger – why is making earnings on interest tax-free such a bad idea?
April 18th, 2008 at 6:10 pm
I think we forget that KS was designed to do 2 things:
1. To reduce inflation by removing money from the economy, that would otherwise be spent on goods and services (with the addition that Employer contributions would dampen future pay rises as well), and
2. To provide for our own superannuation as the Government based super scheme will become untenable in the near future as more baby boomers retire and live longer.
In that respect it meets these objectives very well.
April 18th, 2008 at 8:10 pm
I’m one of the authors of the study. In response to your comments, I’d like to address 3 questions:
1) Is more saving good for now?
Grendel, your 100 odd clients may be contributing to the 9-19% new savings that we found.
But don’t you ask if more savings is better for them?
We found that the new savers are more likely to be poorer than the “reshufflers”, and given that their current income is relatively low and that NZ Super payments are so generous, they shouldn’t be saving at all.
Take an example:
You are living a student life on 20k/year. Your nanny says that if you only spend 19k and save 1k, she’ll give you 2k but you can’t touch the 3k until 10 years later. You want to catch the freebie so you save 1k. But you anticipate that in 10 years you’ll be on an executive salary of 150k. Did setting aside 1k make you better off?
No, you would be much better if your nanny gave you 2k to spend when you are a student.
2) Is more saving good for the future?
Professor John Gibson commented in a Dominion Post article on Tuesday that
“KiwiSaver is not about saving for retirement — it’s about giving a tax cut to Kiwis that they can’t spend until they retire.”
Dr Cullen’s been saying that if you *give* people tax cuts now, they would spend, and that would be inflationary.
I don’t subscribe to the theory of tax cuts being inflationary. But if Dr Cullen truly believes so, shouldn’t he also think that KiwiSaver will cause inflationary pressures in the future, when today savers withdraw their savings?
Remember you can’t eat KiwiSaver, you can only eat goods and services. You can save heaps now but if young people in the future don’t work, your enormous KiwiSaver balances will be useless. Living standards of the aged are better addressed by policies that promote productivity than those that promote savings. Look what has happened to NZ productivity:
3) Is Super Guarantee scheme what makes Oz a richer country than NZ?
Rocket Boy, don’t be so enthusiastic about Australia’s compulsory workplace saving scheme. Look at this
New Zealand
Australia
US
Other questions:
The administration and compliance costs of KiwiSaver
Rocket Boy, on top of the fees you pay your AMP fund provider, enormous costs will be required to collect taxes from David Farrar and distribute it back to David Farrar’s and other’s KiwiSaver accounts and to make sure that myriads of rules are followed.
And this already excludes the so-called deadweight costs of taxation, which Treasury conservatively estimates to be about 20% of the taxes raised.
Timing of study
Ironically, the estimates from “pre-mature” are consistent with Treasury forecasts. Treasury estimates that KiwiSaver will decrease national savings.
See Budget Economic & Fiscal Update 2007, the table at the end of page 79 http://www.treasury.govt.nz/budget/forecasts/befu2007
Does saving cause growth?
As a small open economy, if NZ doesn’t save enough, it can borrow to invest. If it can’t grow, it’s because it has an investment problem, not a saving problem.
This saving good, spending bad, exports good, imports bad stuff is all fallacious. People save to spend, people know best when best to save/spend for themselves. Why do government planners think they know better than ordinary people what’s good for them?
April 19th, 2008 at 8:53 am
LC, do you seriously think kiwis don’t save in the absence of KiwiSaver?
KiwiSaver is a dog of a policy, it’s poor policies like this that drag New Zealand to third world status. Eventually.