27 Aug 2015

KiwiSaver kick-start axed 'based on flawed info'

9:56 am on 27 August 2015

The Government axed the $1000 KiwiSaver kick-start, at this year's budget, on the basis of flawed information, a lobby group says.

A new report by The Institute of Economic Research (NZIER), commissioned by the Financial Services Council, shows KiwiSaver was likely to lead to an increase in net worth and standard of living in retirement for middle and lower income participants.

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KiwiSaver is working for most New Zealanders according to a new report. Photo: 123RF

That contrasted with a Government evaluation which concluded KiwiSaver had little effect on savings, a finding National used to cancel the $1,000 kickstart payment.

That report found for every $1 the Government spent on administering the scheme and topping up members' accounts, it only got an extra 20 cents of additional savings by its target group in 2008 and 2009, rising to 38 cents in 2012 and 2013, as the level of incentives dropped.

The NZIER report did show, however, that KiwiSaver was unlikely to make much difference to those on very low incomes or very high earners.

By scrapping the kickstart incentive, the Government saves $125 million a year, which it said was being channelled into priority public services.

Financial Services Council chief executive Peter Neilson said the evaluation report was flawed.

He said the data only looked at 2007 to 2010, which may have been tainted by the global financial crisis, and when people had very low balances.

"We know that as those balances grow, people start actually thinking about it, saying it's an important part of my life."

Mr Neilson said the KiwiSaver had been remarkably successful in helping people on modest incomes who found it hard to save at all.

About 2.5 million people have signed up to KiwiSaver, and 75 percent of the population between 18 and 64 are members.

That compares with about 15 percent of the workforce in occupational savings schemes previously. And that number was in decline.

"We've never had a long term savings programme that's had this level of take up, and if you look internationally, New Zealand has more people saving on modest incomes, and at younger ages, than virtually any other country in terms of their pension schemes," said Mr Neilson.

He was worried the Government evaluation report could be used to make further changes to undermine the country's improved savings culture.

"If you accepted the evidence used to justify the $1,000 going, you could use that evidence to justify a whole lot of other changes to KiwiSaver that would be adverse."

He said it was possible the $521 tax credit could also be removed, which is another important incentive, he said, to help people on low and modest incomes to actually do some saving.

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