Why are there so many people in KiwiSaver who aren't saving at all?

Professional landlord Sharon Cullwick has just started contributing to KiwiSaver.

Like many self-employed people, she had always backed herself to make the money she needed for a decent retirement rather than relying on the savings scheme.

And with nobody paying her a salary, she wasn’t motivated to pick up an employer contribution.

In the end, it was the carrot of free money from the government that changed her mind. “I put in the minimum to get the government contribution,” Cullwick says.

Before that, she was one of roughly 1.2 million people who belong to KiwiSaver but haven’t made any contributions in the previous year – representing about 40 per cent of the total who are enrolled in the scheme.

Why had she avoided it for so long?

“I have my own retirement scheme,” she says – building a portfolio of retail rental properties.

NZ Property Investors Federation executive officer Sharon Cullwick only joined Kiwi Saver recently, and does not make regular contributions. Many self-employed people follow a similar pattern.
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NZ Property Investors Federation executive officer Sharon Cullwick only joined Kiwi Saver recently, and does not make regular contributions. Many self-employed people follow a similar pattern.

She also continues to feel concerned about giving someone else her money to invest, rather than investing it in property, or to improve her properties.

“I often think that you’re putting your money where someone else can look after it, and who is to say I will get anything back?” Cullwick says.

But the temptation of the $521.43​ government contribution paid to anyone who puts in $1042.86 in their KiwiSaver has resulted in her now making annual one-off voluntary contributions.

When it comes to KiwiSaver, around 3 million people are in the scheme, but many are not making contributions.

In all, at the end of March 2020, there were 1,753,108​ people in KiwiSaver making contributions to their accounts, according to data collected by the Financial Markets Authority.

Some, like Cullwick, were only making occasional voluntary contributions, but they were feeding their balances, and will have something to show for it at age 65.

Another 1,213,873​ people with KiwiSaver accountshad made no contributions at all in the previous 12 months.

Mirror of society

KiwiSaver has reached a scale such that it has become a mirror of our society, data compiled by the Retirement Commission Te Ara Ahunga Ora​, indicates.

People’s circumstances and socio-economic status are reflected in their KiwiSaver choices, or their disengagement from the scheme.

In its latest Financial Capability Survey, the commission asked people why they weren’t making contributions.

The self-employed

People like Cullwick, who were effectively self-employed, made up around 9​ per cent of people not making contributions to KiwiSaver.

David Boyle from fund manager Mint​, but who was previously with the Retirement Commission, says self-employed people did not have the same incentives to contribute to KiwiSaver as people on salaries.

David Boyle, now with Mint Asset Management, was group manager of investor education at the Retirement Commission.
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David Boyle, now with Mint Asset Management, was group manager of investor education at the Retirement Commission.

Salaried worker get employer contributions, magnifying their investing power, he says, while self-employed people do not.

Not all self-employed people begrudge paying themselves a salary and Kiwi Saver contributions. Some see it as good discipline, encouraging them to build businesses profitably enough to draw on.

Ben Brinkerhoff from KiwiSaver business Consilium started saving into super schemes as a young man in the United States. It's a habit he’s been pleased to continue.

Ben Brinkerhoff is effectively self-employed, but he draws a salary, and gets KiwiSaver contributions from the company he partially owns, Consilium.
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Ben Brinkerhoff is effectively self-employed, but he draws a salary, and gets KiwiSaver contributions from the company he partially owns, Consilium.

“I was 21 years old in the US. Being who I am, being obsessed as I was, I maximised my 401K and IRA [two kinds of tax-advantaged superannuation savings schemes],” he says.

“Whatever the max was, I did it. I got to spend whatever I had left over.”

He enjoys the discipline of investing for retirement, ensuring the family does not spend everything it earns, laying down wealth distinct from its business and property assets.

Stay-at-home mums and dads

The largest single identifiable group of non-contributors were busy making contributions of a different kind.

They were raising children.

The commission says 23​ per cent of non-contributors were stay-at-home parents, which goes some way to explain why 59​ per cent of people not contributing to KiwiSaver were women.

Women are more likely to be in KiwiSaver, but not making regular contributions. A big part of the reason is time taken out of the workforce to raise children, or care for sick and ageing relatives.
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Women are more likely to be in KiwiSaver, but not making regular contributions. A big part of the reason is time taken out of the workforce to raise children, or care for sick and ageing relatives.

Stay-at-home parents can qualify for government contributions, if someone makes voluntary contributions for them, such as a working partner.

Pensions researcher and social justice activist Susan St John has campaigned for KiwiSaver to be redesigned to be fairer to women, and for the Retirement Commission to call for the introduction of “care credits” for people raising children, or caring for elderly, sick or disabled relatives.

Other groups in KiwiSaver, which were not contributing were children, and students (about 9​ per cent of non-contributing KiwiSaver members).

The working poor

As KiwiSaver patterns reflect those of society, the relative privations of the working poor are also apparent.

About half of non-contributors had gross personal incomes under $30,000​, according to Retirement Commission data.

Boyle acknowledges this, but says it does not explain why many people who could afford to contribute, are not.

“There are a lot of Kiwi savers who could be contributing,” he says.

Other factors must be at play.

Our psychological make-up

The commission’s survey revealed personal differences in people's psychological make-up, their education and their financial behaviour played a major role in their super savings habits.

“Thirty-five per cent of the differences in scores (for preparedness for retirement) is explained by demographic and socio-economic factors such as age, income and home ownership,” it concludes.

But, it says: “Financial knowledge, psychological factors and other financial behaviours explain 38 per cent (of the differences).”

The Dunedin Study has followed 1037 people since they were born in 1972 or 1973. One of its strongest conclusions is that people who were able to show self-control, and self-restraint when they were children, ended up wealthier as adults.
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The Dunedin Study has followed 1037 people since they were born in 1972 or 1973. One of its strongest conclusions is that people who were able to show self-control, and self-restraint when they were children, ended up wealthier as adults.

The psychological factors include things like the strength of people's “locus of control”, which is their belief that things they do will result in improved financial futures.

Trauma, education levels, debt and low wages could put insurmountable barriers to saving into KiwiSaver, the survey suggests.

A recent survey by the Financial Services Council, a political lobby group for KiwiSaver providers, found some people were startlingly disengaged from KiwiSaver.

Just over 7​ per cent said they did not know how much they were contributing to KiwiSaver, and 22​ per cent could not say with confidence how much they had saved.

It’s a hard, hard world

Stage of life also seems to play a part in temporary halting of contributions, as does sudden, unexpected changes in people’s circumstances.

Covid prompted a spike of people putting their contributions on hold.

The number of people on “savings suspensions” peaked at 141,000​ in May 2020, Inland Revenue data shows, but has now dipped back down to just under 120,000​.

The Retirement Commission says savings suspensions are most common among 18-34 year olds who are still a long, long way from retiring, but who are also not using KiwiSaver to build a deposit to buy their first homes.

That contrasts with many over 65s who are keeping their Kiwi Saver accounts open, with many continuing to save money into them.

At the end of March, 128,115 people aged 65 or over had KiwiSaver accounts, including several hundred who were aged over 65 when KiwiSaver was launched 15 years ago.