FSC takes issue with Treasury report showing KiwiSaver not delivering value
KiwiSaver's $1000 kickstart incentive was removed on the basis of inaccurate information, an industry lobby group has argued.
It was announced in this year's Budget that the kickstart would be axed, after a Treasury report recommended a wider review of the scheme.
Treasury's KiwiSaver evaluation report argued that the scheme was poor value for money and had not substantially increased New Zealanders' savings.
Removing the kickstart would save the Government $500 million over four years.
In response, the Financial Services Council (FSC), which represents investment and life insurance companies, commissioned the New Zealand Institute of Economic Research to conduct its own evaluation of KiwiSaver.
FSC chief executive Peter Neilson said: "Government should not have made the decision [to remove the incentive] based on this evidence".
"KiwiSaver has been effective to get middle New Zealanders to save and they will end up with more saving in retirement and less risk in terms of where they save because of it."
He said the NZIER report focused on the people KiwiSaver was designed for – those who were likely to have a lower standard of income in retirement than they had when they were working.
The report found KiwiSaver was likely to lead to an increase in net worth and standard of living for those people.
It was less likely to increase savings for people with very high and very low incomes.
NZIER principal economist Aaron Drew said: "For the most wealthy it's just a small part of their assets and they are probably just there for the incentives. For those on low incomes, New Zealand Super is at least as good as the income they receive pre-retirement."
NZIER's report said KiwiSaver should also lead to more diversified investment portfolios in New Zealand, reducing the concentration risk of having much of New Zealanders' money tied up in housing.
Drew said: "If there is a really bad economic shock which compromises the ability of a future government to pay for New Zealand Super, KiwiSaver is one of the key things that is potentially there to mitigate that risk."
There are more than 2.5 million people in the scheme and 75 per cent of the population aged between 18 and 64 are members.
That compares to about 15 per cent of the workforce before KiwiSaver was introduced.
Neilson said the NZIER report found the evidence for Treasury's argument was too narrow because it used data only from the global financial crisis years.
He said it did not consider that KiwiSaver attracted young and low-income people who would not usually have been involved in formal savings schemes.
"The analysis simply compared the results for the people in KiwiSaver with those who were not, as opposed to those in the target audience who joined KiwiSaver compared with those in the target audience who did not."
"We need to compare apples with apples. People on a benefit can't afford to save and are likely to receive a higher income from New Zealand superannuation than they received during their adult lives on a benefit anyway.
"At the other end of the scale, people who were saving for retirement by investing in rental property or a farm would be unlikely to use KiwiSaver other than to just pick up the KiwiSaver incentives.
"For this group KiwiSaver would probably not increase their savings, it would only change the composition of their savings. Neither of these categories were in the target group for KiwiSaver and should not have been used for comparison," Neilson said.