Hon Peter Dunne
Minister of Revenue

Friday, 23 October 2009 Media Statement

Dunne: Almost 1.2 million Kiwis have embraced KiwiSaver

Revenue Minister Peter Dunne said the second annual evaluation of the KiwiSaver programme, released today by Inland Revenue, highlights just how much people have embraced the savings scheme.

“We saw KiwiSaver’s membership reach almost 1.2 million people (1,189,597 as at end of September, 2009), with growth of 54% in that second year,’’ Mr Dunne said.

‘’That means about 32,000 people joining every month which is tremendous. ”

He said it is particularly significant to see the number of young people taking responsibility for saving for their future.

“The uptake has been good across the board, but it‘s particularly notable among people aged from 19 through to their mid-20s.”

Mr Dunne said in the year to June 2009, $2.1 billion in contributions from members, employers and the Crown were passed to providers for investment, more than double the amount for the first year. In total, $3.15 billion in contribution was transferred to providers in the scheme’s first two years – or $4.25 billion to the end of September.

The report also looks at members’ contribution rates, which included the changes in April 2009. It found that of those who joined KiwiSaver since the changes, approximately half were contributing at 2%. However, most of those who joined before April 2009 have not changed their contribution rate.

The evaluation process runs from 2007/08 until 2012, and is a joint project between Inland Revenue, the Ministry of Economic Development and Housing New Zealand. Its objectives are to:

• Assess the implementation and delivery of KiwiSaver in order to inform ongoing development and service delivery;

• Assess whether the key features of KiwiSaver are generating the expected outcomes;

• Monitor KiwiSaver usage to understand the scale and pattern of take-up;

• Examine the impact of KiwiSaver on individuals’ saving habits and asset accumulation; and

• Examine the impact of KiwiSaver on superannuation markets and the financial sector.

The 2008/09 KiwiSaver Evaluation Report is available at
http://www.ird.govt.nz/aboutir/reports/research/report-ks/

ENDS

Questions and Answers:

Evaluation process and scope

1. What does the evaluation cover and when will it be finished?

The evaluation has five main objectives. They are to assess the implementation and delivery of KiwiSaver, to determine whether the features of KiwiSaver are generating expected outcomes, to assess the scale and pattern of take-up, to determine the impact on savings habits and asset accumulation of individuals, and to assess the impact on financial markets and the superannuation industry. The evaluation runs from 2007/08 until 2012/13.

2. Who is responsible for the evaluation?

The evaluation is a joint project between Inland Revenue, the Ministry of Economic Development and Housing New Zealand.

3. When will the evaluation be able to answer questions about the impact of KiwiSaver on savings levels?

The extent to which KiwiSaver does or does not impact on overall savings levels is a long-term question, extending even beyond the timeframe for the evaluation. It is intended, however, to focus on the impact of KiwiSaver on savings levels from 2009/10 onwards. Research being done in the evaluation in 2009/10 is going to look at the following:

• Understanding more about the profile of members and non-members and reasons for membership/non-membership
• Investigating the drivers behind members’ use of specific KiwiSaver features (e.g. contribution holidays, investment funds, homeownership features) to understand how long-term use of KiwiSaver might develop and how use of features might influence savings outcomes
• Investigating members’ and non-members’ approach to saving for retirement
• To provide an indication of the extent to which KiwiSaver saving is additional

4. Will changes be made to KiwiSaver as a result of the evaluation?

It is not intended to make changes to KiwiSaver as a result of the findings in this evaluation report.

5. When will information be available from the Statistics NZ SOFIE survey?

KiwiSaver information will be collected in wave 8 of the survey which is in the field between October 2009 and September 2010. Information will be available for analysis in the 2012/13 year.

Enrolment, costs and funds saved

6. Why has the reporting of enrolment method changed? Does this mean the figures weren’t right previously?

The change in the way enrolment method is reported was made to more accurately capture the dynamics of KiwiSaver members’ behaviour. Previously anyone who chose their own provider/scheme within the three-month holding period was reported as having opted-in via a provider. The revised method of reporting now allows us to see more clearly that some of those people previously classified as opt-in via provider enrolled by either opting-in with their employer or through automatic enrolment and then went on to choose their own scheme.

Investigating the behaviours and choices being made by KiwiSaver members in regards to their savings is important for the evaluation and the revisions to reporting enrolment methods enable us to do this monitor these dynamics more effectively.

7. Why are enrolments slowing? Is this the impact of the recession?

KiwiSaver enrolments are still growing, albeit more slowly than previously. The opt-out rate is fluctuating on a monthly basis, but in terms of the overall proportion of people who have opted-out at any point in time, the numbers are relatively more stable.

It’s possible that fewer people are joining KiwiSaver at the moment due to the uncertainties in the economic environment. However, it’s also likely the membership in KiwiSaver will plateau at some point (the forecasts in the report anticipate that this will take place at around 1.4 million members) so as we get closer to that point we would expect the rate of growth to be slowing.

8. Have employers’ costs risen with the removal of the ETC? Won’t this just add to difficulties employers are currently facing?

Employers’ contributions costs will have risen as a result of repealing the ETC. However, calculating and claiming the ETC created administrative and compliance costs for employers and these will have been eliminated through the removal of the credit.

9. What does it cost employers in administrative and compliance costs to have KS members? Will the evaluation be able to answer this?

The evaluation is intending to look more extensively at the impact of KiwiSaver on employers, including assessing the costs incurred by employers for administration and in complying with their KiwiSaver obligations in the current year. The research will be completed by June 2010 and will focus on determining employers’ compliance costs, and the costs of making changes to the remuneration structures/practices and any existing superannuation schemes (if applicable), and also looking at whether employers’ approaches to KiwiSaver have any impact on employees’ participation rates.

10. Why are some people not receiving an employer contribution?

Those who are not receiving an employer contribution will be those who wok for employers or companies with existing workplace superannuation schemes prior to KiwiSaver. If the employer is contributing to another superannuation scheme they may not be making further contributions to KiwiSaver as well.

11. What’s the reason for the declining proportion of Crown funding?

Slow downs in the growth in enrolments means that fewer kick-start payments are being made. Additionally, the kick-start is a one-off payment for each member but the member and employer contributions are made every fortnight or month. Each year the member tax credit payments will increase the Crown’s relative contribution in one or two month periods when these are paid to providers.

12. Why are the funds under management less than contributions?

Funds under management takes into account the investment returns on members’ contributions as well as the inflow of funds from members, employers and the Crown. Any positive or negative difference between funds flowing to providers (both from Inland Revenue and contributions being made directly to providers) and the value of funds under management is the result of fund performance and fees.

13. If the KiwiSaver market is concentrated, will the smaller providers and schemes be able to survive? Does the wind up of two schemes mean that a lot of providers won’t be able to survive?

That is not something that Inland Revenue can comment on. It is up to the individual scheme providers to decide how best to attract members and up to individuals to make a decision about which provider and scheme they wish to join when they first become KiwiSaver members. KiwiSaver members are also able to change their provider and schemes over time.

Membership profile and account choices

14. Is KiwiSaver saving new saving or are people diverting their saving from other sources?

Understanding whether KiwiSaver saving is new savings or savings diverted from other sources is a core priority for the evaluation. However, it is too early at this stage to determine the answer to this question. KiwiSaver is focused on establishing long-term savings habits so the question of savings additionality needs to be considered over a longer period of time, even beyond the lifetime of the evaluation project.

The primary way the evaluation will determine the answer to this question is by using Statistics New Zealand’s SoFIE survey. This work will be done in the 2012/13 year. Other work looking at early impacts on individuals’ savings attitudes and behaviours is being undertaken in 2009/10. This work is intended to supplement SoFIE not to answer the same, ultimate questions that SoFIE can.

15. Why are there some people not contributing 2%, 4% or 8%?

There are a number of possible explanations for the people who appear to be contributing at ‘other’ contribution rates. Members may have agreed a different arrangements with their employer, or for a number of reasons (e.g. change of employer) they may have only have had a partial month deduction or a fluctuating income level which then appears as they are contributing at an ‘other’ rate.

16. Given there are only a few people on 2% does that mean the change in policy hasn’t been successful? If most people haven’t changed their contribution rate does that mean the change in policy hasn’t been successful?

It’s still early on since the change in policy took effect. Members may decide to change their rate over a number of months so it will take time to see how many people decide to switch rates and whether or not new members choose to stay on the 2% rate. Also, the policy is intended to give choice to members in regards to their contribution rate; whether or not members choose to take up that choice is for them to consider.

Understanding more about individuals’ contribution choices will be investigated in research with individuals being undertaken in the current year.

17. Is there MTC information available for 2008/09 year? Why is there only MTC information in the report for 2007/08?

Providers make claims on members’ behalf for the MTC payments after each financial year has ended. This means that providers are in the process of making claims for the 2008/09 year so full MTC claim data is not available for this year yet.

18. Does the rise in numbers of people on contribution holiday mean people are having difficulty affording KiwiSaver? What are the reasons why numbers on long holidays are increasing? Is there holiday gaming going on?

The number of people on a contribution holiday has risen over the year to June 2009 as the first members were eligible to take holidays from July 2008. By the end of the year approximately 4% of those who have to take holidays in order to stop contributing had taken a holiday.

There are a number of reasons why the number of people on holidays might be increasing. It might be the case that the current economic uncertainty means that members are choosing to take a break from contributing. It’s also possible that members are taking holidays and only contributing what’s necessary to maximise their member credit. Also, IR has an administrative process whereby people who apply to opt-out after they’ve been enrolled for more than one year are automatically given a five-year holiday.

Understanding more about the reasons why individuals take holidays is a priority for the evaluation and will be investigated in research with individuals being undertaken in the current year.

19. Why are so few children contributing to their accounts (or having contributions made to their accounts)?

It’s not possible to tell from Inland Revenue’s data the full extent of contributions being made to children’s accounts as it’s likely that other contributions are being made directly to scheme providers. But it does appear from IR data that very few children are either contributing to their accounts or having others contribute on their behalf. As children are not eligible to receive the member tax credit the incentives to contribute to the accounts are not the same as those for adult members.

Understanding more about the reasons why parents are enrolling their children and decisions regarding contributions to their accounts will be investigated in research with individuals being undertaken in the current year.

20. What are the reasons for the increase in the number of transfers? Are providers taking business off each other?

There are a number of reasons why individuals might be transferring between schemes. In some cases members were required to transfer schemes because their scheme was wound up during the year (those in eosaver and IRIS schemes). Other members will be changing schemes and providers as a result of considering a number of factors (e.g. fees, performance, different types of investments on offer, levels of service etc). Over time, as the number of members enrolling slows, you might expect competition between providers for existing members to intensify.

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