OLIVER HARTWICH: A $110 billion illusion?
- Administrator
- Mar 22
- 2 min read
KiwiSaver has $110 billion in assets and over three million members. Contribution rates rise from April. Both major parties want to push them to 12%.
Everyone assumes the scheme is working. But no one can prove it.
The only rigorous evaluation of KiwiSaver’s impact on wealth was published in 2017 by Treasury economists David Law and Grant Scobie.
Law and Scobie found that KiwiSaver members accumulated no more total wealth than non-members. Two-thirds of contributions had simply been shifted from bank accounts and term deposits into a KiwiSaver account. New Zealanders were not saving more. They were saving differently.
Economists have long understood this. In 1954, Franco Modigliani showed that households plan their savings across a lifetime. If forced to save through one account, they save less through others. They pay down less debt or put less into the bank. Modigliani won the Nobel Prize for this work.
Evidence from the US, Denmark and the Netherlands has since confirmed the pattern: between 50% and 80% of every mandated retirement dollar is offset by less saving elsewhere.
The Law and Scobie study is now nine years old, and no more recent study has shown that the $110 billion programme does what it was designed to do. Regardless, we are about to make it much bigger.
When advocates talk about raising “employer contributions,” they imply your boss is giving you something extra. Australia’s Grattan Institute studied 80,000 workplace agreements over three decades and found the opposite: when compulsory super went up, pay went down by almost the same amount.
So why does everyone believe KiwiSaver is a success? Because $110 billion in accounts looks like new wealth. Much of it would exist anyway, in other forms. But big numbers are persuasive, and over two decades, KiwiSaver has built a constituency whose livelihoods depend on the scheme growing.
There is also another problem. The bigger the pool gets, the more politicians eye it as a potential way to fund their preferred projects. What was sold as your retirement nest egg risks becoming a pool of capital for others to direct.
After nearly 20 years and billions in subsidies, no one has shown that KiwiSaver has made New Zealanders wealthier. Still, the instinct across the political spectrum is to make the scheme bigger.
Before we do, we might want to ask why we expect KiwiSaver’s next decade to deliver what the first two did not.
This article first appeared in the NZ Initiative newsletter.
Access other recent Brash & Mitchell posts at www.brashandmitchell.com
Because our education system has never taught the fundementals of financial literacy there are many people in NZ who do not appreciate things like the time value of money, the effects of inflation, the power of compound interest etc. and as a consequence tend to spend the majority of their life's earnings on things that do not retain or increase their value and when they come to retirement they do not have sufficient accumulated savings to retire with any sort of dignity. They often need extra support from the governement to prevent real hardship.
I see real benefits of the likes of compulsory savings schemes like kiwisaver in ensuring that this group of people have some sort of nest egg…
I find it difficult to identify anything established and managed by politicians and bureaucrats that works out very well. That is probably because these people don't care how they spend OTHER PEOPLE'S MONEY. The concept of saving and investing some of one's income for unforeseen events and retirement is sound, practical and sensible. The Kiwisaver initiative is based on the assumption that the prices of shares will continue to rise as they did since 1980. This is definitely not certain and there is evidence that the prices of these investments are excessive and overdue for a serious correction. What happens to people if and when the money in investments that were supposed to increase actually decreases when they need access to it? Someone wise once said…
Are investments in Kiwi Saver and other managed funds pushing up the price for goods and services, I think they are. Fund managers look for returns on their investments and invest in companies with the highest returns, companies need investors so they push prices to increase returns to investors. We see this with Electricity retailers. Add to this the parasites that are 'experts' in a chosen fields advising us on what we should be doing. A question to Chat GP had NZ managed funds valued at over $400 BILLION, about the same as our GNP. One of the Nordic countries with about the same population as we have has over a TRILLION $ in managed investments. How much is enough…
The game is played to be won..... for no one designs loss as their aim.
Politician's merely play the game.... its the rules of the game that need to be clarified; and set in stone!.
When you get corrupt Govts that always spend more than they get, These will never work, when i started work in the 50s. I was told that part of my taxes went to our medical care, some to Education , and some to your pension, the rest to the govt. BUT what has happened from successive Govts is that they overspend so they have robbed the pension fund to pay off their excessive ways and never pay it back, so we get to the position where they keep increasing the age as to when you can collect the pension. IT WAS YOUR MONEY THEY THIEVED