KEY POINTS:
At times it might have seemed like we'd never get there, but Finance Minister Michael Cullen's ultimate solution to the problem of how to get Kiwis to provide for their retirement celebrates its first anniversary on Tuesday.
Has KiwiSaver been good for us?
On an individual basis there
is no doubt that New Zealanders have won out of the superannuation scheme. The benefits are impressive - a $1000 kick start, up to $1040 in tax credits a year, as much as 4 per cent employer contributions, even a possible $5000 deposit on your first home.
That it's been attractive to Kiwis is clearly demonstrated in the numbers. Latest available figures show that by the end of May, 673,942 people had joined the scheme. That means that in the first year nearly three times as many people signed up than the 270,000 the Government originally predicted.
In that time those savers, their employers and the Government have collectively contributed about $1 billion to KiwiSaver accounts.
The jury is well and truly out, though, on whether this inflow of funds will actually improve overall national savings.
"Individual people are really foolish not to go into KiwiSaver," Westpac economist Dominick Stephens says. "There are very few New Zealanders who shouldn't be in [it], it's the best deal you can possibly have."
But the economist is deeply sceptical that KiwiSaver will affect the aggregate national savings rate.
He is not alone. Almost everyone the Weekend Herald spoke to for this story agreed that most savings directed into the scheme have been displaced from elsewhere - that is, people would have saved the money anyway and have simply diverted it into KiwiSaver in order to take advantage of the government subsidies and employer contributions.
Stephens says there was little evidence in this week's current account figures - showing New Zealand sank deeper into debt in the March quarter - of KiwiSaver funds making any impact so far on the country's gaping deficit.
And KiwiSaver is costing the taxpayer a lot of money. In the 11 months to May, government subsidies for the scheme totalled $497 million.
Stephens says this money could have been put into the New Zealand Superannuation Fund instead, thereby bolstering national savings. Together with the administration costs of KiwiSaver, "the Government would have been better off just giving us a bigger tax break".
A study by New Zealand Institute of Economic Research economist Trinh Le and Waikato University, presented to the Retirement Policy Symposium in April, showed that the country might actually be making a savings loss thanks to KiwiSaver.
Le says that as little as 9 per cent of the money that's gone into KiwiSaver might be new savings - not enough to cover the administration and compliance costs of the scheme.
"The way to solve the problem would not be to encourage savings but to encourage income growth, that is to have more growth-oriented policies."
Leo Krippner, head of investment strategy at default KiwiSaver provider AMP, concedes the savings diversion problem. But he believes it's too early to really pick trends.
He says some New Zealanders will be saving who have never saved before. And he says perhaps the issue is not whether KiwiSaver increases the quantity of savings, but rather the quality.
"I think that there's an argument to be had for the fact that KiwiSaver puts money into a larger pool, and that larger pool can be put into investments like infrastructure that are of benefit to New Zealand consumers and New Zealand's economic growth."
Previously New Zealanders would have probably put that money into housing, "which is not necessarily a particularly productive use of capital".
Philip Houghton-Brown, chief investment officer at fellow default provider ING, does not believe there is a risk of cannibalising existing savings because, he says, New Zealand saving levels have been relatively low.
The other benefit of the scheme is duration - savings in the bank, and even in houses, are readily consumable, whereas in KiwiSaver they are locked away until retirement, he says.
Which brings the fund managers to their other conundrum - how to get Kiwi investment novices out of the conservative default KiwiSaver funds.
AMP has estimated that around 55 per cent of KiwiSavers are in conservative funds. Krippner says New Zealanders haven't yet started to think about the concept of conservative, balanced and growth portfolios and their various merits.
"That's going to be a challenge for us as an industry, to make sure that we're providing people with the information they need to make their minds up about that."
That's all very well for the fund managers to say, Retirement Commissioner Diana Crossan retorts. "The new saver is nervous, and why wouldn't you be at the moment?"
With 24 finance companies having hit trouble within two years, and the sharemarket down 20 per cent since the start of the year, the timing for KiwiSaver's launch hasn't been ideal. Movement towards growth-oriented funds will happen with time, she says.
On the question of whether the super scheme is improving the national savings record, Crossan also says give it time. She says it took many years before Australia started to see new savings growing out of its compulsory superannuation regime.
Crossan says the Retirement Commission's biggest concern at the moment is to convince New Zealanders to keep their money in the scheme.
After 12 months members are entitled to take a contributions holiday and to divert half of their own contributions into repaying their mortgage - although there has been a hold up on the latter provision.
Savers will also get their first statements from providers, and will see that they haven't made millions.
There is also criticism that it is mainly medium to high income earners who are benefiting from the scheme.
Inland Revenue, in its six-month report, said the median income of scheme members was $33,376. This compared with $24,000 for those who had been automatically enrolled but opted out.
Provider Mercer says survey work it has done shows the same trend, although chief executive Bernie O'Brien says it's early days and that may change over time. "If the next series of governments don't do too much tweaking of KiwiSaver it will become much more embedded in New Zealand workplace behaviour."
* 673,942 members.
* 244,321 automatically enrolled.
* 429,621 opted in via employer or provider.
* $903 million invested.
* 27% members aged under 25.
* 54 different KiwiSaver schemes.
- Number of schemes as at June 27. Other figures as at May 31.
