Veritas propter investigationem [Truth through research]
TitleKiwiSaver and the Accumulation of Net Wealth (2014)
AuthorsDavid Law
 Grant Scobie
InstitutionNew Zealand Treasury
TopicsAuto-enrolment, opt-out
 Behavioural economics
 Pension reform evaluation
 Saving issues
 Longitudinal survey
CountryNew Zealand
Date Published2014
Date posted on PR30 Dec 2014
Law, D Scobie, G, (2014). KiwiSaver and the Accumulation of Net Wealth (2014) New Zealand Treasury,

PensionReforms’ summary and comments

New Zealanders worried for nearly 20 years about retirement saving habits after all tax breaks for retirement saving were withdrawn over 1987 to 1990.  Encouraged by financial service providers, the last Labour government introduced the world’s first national, auto-enrolment, opt-out retirement savings scheme.  It has attracted 2.3 million members (of a total eligible population of about 3.8 million) and has been dubbed a huge success by, mostly, financial service providers.  Of the $NZ23 billion in assets, about $6 billion has come from taxpayers in the form of subsidies.  The real measure of success should be whether New Zealanders are saving more for retirement, assuming that they needed to.  Some reports suggested that New Zealanders were actually behaving rationally before KiwiSaver started – see here, here and here).


This 2014 report looks at “…the extent to which the KiwiSaver scheme has resulted in greater accumulations of net wealth amongst its members, relative to that which might have been expected in the absence of the scheme.”


This is a lofty target because no-one can really know what savers would have done in the absence of such a huge policy change as happened with KiwiSaver in 2007.  Fortunately, a longitudinal survey was already under way - the Survey of Family, Income and Employment (SoFIE) started in 2002 and gathered financial information from participants every two years (2004, 2006, 2008 and 2010).  The authors were able to match administrative data from the Inland Revenue Department (IRD) which administers the collection and distribution of contributions to the KiwiSaver scheme chosen by the member.


“The analysis is based on two approaches.  The first uses a difference in difference (DiD) technique, the second uses different panel regression techniques.  The DiD technique compares outcomes (in this case changes in net wealth) before and after the introduction of a programme such as KiwiSaver, across two groups (those in the programme and those not).  In this way, those who are not members of the scheme form a control group.”


The results of the DiD analysis were somewhat surprising for the authors: “…the accumulation of net wealth by members of KiwiSaver was some $16,000 less than the comparable accumulation of non members.  Further, in an attempt to hold some of the other factors likely to affect net wealth accumulation constant, the DiD analysis was repeated by age, gender, education, income, wealth, partner and home ownership status.  There was a positive effect [higher net wealth for KiwiSaver members] in only five of the 28 cases examined.  In three of these cases the estimated effect was small.  In one case, however, the estimated effect was relatively large, at $20,000 in favour of KiwiSaver members.  All other cases indicated KiwiSaver members accumulated less than non-members.”


The DiD analysis has to hold one factor constant:

“To address limitations of the DiD technique, various fixed and random effect panel regression models are estimated in which changes in net wealth are related to many factors simultaneously.  These include: KiwiSaver membership; income; net wealth; age; gender; partnership status; home and investment property ownership; ethnicity; if the respondent was born in New Zealand; education; labour force and health status.  With four observations over time on assets and liabilities in SoFIE it is possible to measure three changes in net wealth for each of approximately 10,000 individuals.  This provides nearly 30,000 observations for inclusion in each regression.”


The result of this more detailed analysis confirmed the DiD results:

“The effect of KiwiSaver on net wealth accumulation is estimated to be negative in all model specifications examined, although the coefficient estimates are typically not statistically significant at conventional levels.”


The authors suggest caution in the interpretation of the results.  There has been considerable difficulty with some of the data that have produced wide distributions of changes in net household wealth with “…little correlation in these changes over time for individuals.”


The authors have done their best to compensate for these obvious errors but they say they have  “…only been partially successful.”


The report notes that the results of the latest analysis confirm earlier findings (reviewed here).


“The current study, which uses completely different techniques and data to that initial evaluation, provides a second piece of evidence which suggests that KiwiSaver has not been associated with greater accumulation of net wealth by its members and hence improved retirement income outcomes.”


PensionReforms thinks that readers should have been surprised if the results had been otherwise.  If New Zealanders were ‘perfectly rational’ and were saving enough for retirement before KiwiSaver started then they should adjust their other annual savings downwards to compensate for the subsidised KiwiSaver alternative.  If they specifically allowed for the tax subsidies and the employer subsidies as well and built those into their future annual savings, they could even reduce their present ‘other’ net wealth so we could expect savings (accumulated and annual) to be less for members than non-members.


The real world is, of course, not as perfectly rational as that but the report’s general message to governments should be clear – governments seem relatively impotent if they set out to change the retirement saving habits of citizens.  PensionReforms thinks they should stop trying.


It’s not often that the effects of a major initiative like KiwiSaver can be measured at a household level.  PensionReforms notes, incidentally, that the analysis of this natural experiment comes from the government’s own advisers.


There is one final lesson from this report – PensionReforms suggests that longitudinal studies of the kind used in the report are the only way to properly measure the impact of public policy changes such as the introduction of KiwiSaver or, indeed, the behaviour of households and individuals generally.  The pity in this particular case (SoFIE) is that the survey was inadequately structured.  PensionReforms hopes that SoFIE II appears and that the lessons from SoFIE I are used to design and implement the replacement.  (File size 372 KB; 30 pp) 713