KiwiSaver was the first national auto-enrolment retirement savings product in the world, launched in 2007. Since then, it has been admired and critically appraised at home and away.
The glass half-empty view of KiwiSaver is that it has achieved its policy objectives at best marginally. There are questions about KiwiSaver’s value for money from a government perspective: comparing the cost to the government in incentives to the net additional wealth in KiwiSaver accumulated by members of the target population.
The evaluation is a useful commentary on what happened, but it looked back rather than anticipating the future. It was not intended to be a test of whether the best policy choices were made for long-term benefit, or whether policy settings are appropriate now.
The evaluation is mainly from the first 3.5 years of KiwiSaver’s life – a time of global financial crisis, when the incentives to join and stay in KiwiSaver were more generous than today. The evaluation did not compare the effect of KiwiSaver on savings to an alternative of no KiwiSaver, or to a different version. Nor did it provide benchmarks for what it would be realistic for any savings plan to achieve.
The glass half-full version of the KiwiSaver story is that it very quickly became established as the focus of retirement savings in New Zealand.
- Around 75 per cent of the population aged 18 to 64 are members of KiwiSaver. Before KiwiSaver, fewer than 15 per cent of the workforce were in an employer pension scheme.
- If we look at just one international benchmark, KiwiSaver very quickly achieved higher coverage of working age New Zealanders than the entire UK pensions industry had managed despite years of generous incentives.
Clearly, KiwiSaver provided New Zealanders with an attractive new option for making retirement savings. Most members have joined voluntarily and the proportion of auto-enrolled employees who are opting out is reducing. Members are increasingly making active fund and provider choices. Employers, providers, employees and individual members say dealing with KiwiSaver is easy.
KiwiSaver’s coverage success is because of its structure: it’s a single account which any New Zealand resident can take from childhood, though working age and on through into retirement. KiwiSaver avoids the fragmentation of message and product that exists in other countries: it combines choice of funds and provider in a single account under an umbrella brand name and administration.
The cost of KiwiSaver’s incentives is low, relative to the extraordinary cost of tax incentives for UK pensions. UK incentives are notoriously skewed towards higher earners; the incentives in KiwiSaver are not. If this sounds at odds with the conclusion of the value for money evaluation of KiwiSaver, that’s explained by the narrow definition used for “target market” and the high threshold for “net additional wealth”.
KiwiSaver transformed New Zealand from a country with little by way of retirement saving to having a low-cost, high-coverage, integrated national model. However, even if the settings under which KiwiSaver operates have been successful, it’s another question as to whether the settings are optimal for the future. What is the right default contribution rate? What can realistically be expected from members in terms of regularity and level of contributions? What should asset profiles and fee levels of default funds be? At what level should incentives be set?
These settings would be expected to vary over time as policy objectives change, and to be different by country. The ongoing debate in New Zealand is all about under which settings KiwiSaver should operate, not about which alternative model or scheme structure would achieve more. KiwiSaver’s success is demonstrated by being so well established.