KiwiSaver vs UK pensions

It took KiwiSaver less than 5 years to achieve higher coverage of working age New Zealanders than the entire UK private pensions industry. The UK is catching up only now that it has started auto-enrolment. 

In 2007, KiwiSaver was launched in New Zealand as a national retirement savings scheme, with auto-enrolment and compulsory employer contributions.  The UK started rolling out auto-enrolment for workplace pensions in 2012.

There are many differences between the two schemes: KiwiSaver is a national scheme for everyone, not just pensions for employees, incentives are different, and New Zealand and the UK differ by size and economic conditions. No comparison will be exact, but suggestive.

One of the aims of auto-enrolment is to increase coverage – the number of people saving for retirement. I estimate KiwiSaver overtook the UK for coverage within 5 years of launch.KS vs UK LLP

This compares the proportion of New Zealand residents aged 18-65 who are KiwiSaver members to:

  1. A low estimate for Great Britain given by the percentage of individuals with wealth in private pensions not yet in payment: KiwiSaver overtook this measure in 2010.
  2. A higher estimate for the UK given by the proportion of employees participating in workplace pensions. KiwiSaver overtook this measure in 2012.

Comparing KiwiSaver with the first measure is more appropriate. It comes from the Office for National Statistics Wealth in Great Britain series. This measure is about a population, so includes people other than the employed, as does the KiwiSaver measure. The measures are not quite for the same ages: the GB data starts at age 16 and has no end age, but there will not be many KiwiSavers over age 65 because you can only join below that age.

The GB measure also estimates the total pensions wealth British individuals have from more than one pension scheme – and it is common that people have several as pensions haven’t normally consolidated on job change.  The New Zealand measure understates pension savers as it excludes those with non-KiwiSaver funds.

The second measure, for the UK, is from the Department for Work and Pensions Workplace Pensions Trends series. The estimate is a proportion of eligible employees who are participating in workplace schemes, where “eligible” means eligible for auto-enrolment: that is not already in a qualifying pension arrangement, aged at least 22 but under State Pension age, and earn more than £9,440 a year in 2013/14 earning terms.  This is a definition crafted around the UK auto-enrolment policy, and KiwiSaver is a more inclusive product.

Coverage in KiwiSaver means being a member, which may not mean actively contributing regularly.  Members can take a contributions holiday from payroll deductions, or opt out, or contribute irregular amounts. Inland Revenue data suggests most members on a contributions holiday do make voluntary contributions during that time. However, even excluding a best estimate of all of those aged 18+ and on a contributions holiday, KiwiSaver coverage still  reached the higher UK measure in 2012/3.

It’s not just coverage though – what about amount of savings? The UK looks to be winning on this score – not surprising given the short life of KiwiSaver.  On the first measure for GB individuals aged 16+, the median pension wealth not yet in payment was estimated at £33,000 in 2010/12; higher for those at older ages of course as they have had longer to accumulate wealth.  Inland Revenue data puts median KiwiSaver balances for the first cohort eligible to withdraw after 5 years membership and aged 65+ in early 2013 at around $15,000 – roughly £7,500.  This isn’t a fair comparison given the different time wealth has been accumulating in the two markets, and the different nature of those markets, but still, a challenge for any saving scheme is to enable people to save enough to reach retirement expectations.

The upturn in coverage of UK workplace pensions as auto-enrolment has started is dramatic.  The UK may overtake KiwiSaver, although there isn’t current data on the more appropriate measure yet. The speed with which KiwiSaver has overtaken the UK is remarkable because of the large and long-established industry in the UK, and its history of generous tax incentives.

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