KiwiSaver Six-monthly report 1 (Research and evaluation reports)

Document summary: This report is the first of a series of six-monthly reports evaluating the effectiveness of KiwiSaver, including its implementation, delivery and, in the longer term, impact on the savings levels of New Zealanders and the development of the financial sector.

Document content:

Executive summary

Report purpose and scope

This report is the first of a series of six-monthly reports evaluating the effectiveness of KiwiSaver, including its implementation, delivery and, in the longer term, impact on the savings levels of New Zealanders and the development of the financial sector.

The report relates to the first six months of KiwiSaver operation, 1 July to 31 December 2007. It brings together information from Inland Revenue's administrative data and research reports produced over the last six months and focuses on the initial participation in KiwiSaver, levels of awareness and understanding, initial implementation and delivery, and some of the features that are designed to encourage participation, particularly:

The role of KiwiSaver as a work-based initiative, including the experience of employers in implementation, the interaction between employers and employees in understanding and meeting KiwiSaver requirements, the role of communications and information initiatives intended for distribution in the workplace, and the extent to which KiwiSaver has been successfully aligned with existing workplace processes (alignment with the PAYE system was intended to assist employers in meeting their KiwiSaver obligations).
The opt-in and automatic enrolment options designed to encourage participation, in particular, the extent to which the automatic enrolment processes are working as intended, and whether automatic enrolment seems effective in this early stage at encouraging individuals to join and remain active KiwiSaver members.
The role of the incentives in encouraging uptake of KiwiSaver. While some incentives do not start until 1 April 2008 (eg compulsory employer contributions and the employer tax credit) and others do not start until 1 July 2010 (eg first home deposit subsidy and first home savings withdrawal) their influence on the decisions of individuals is investigated.

The report does not comment on the broader savings environment or other policy initiatives designed to impact savings behaviour.

Evaluation findings

It is still early days for KiwiSaver. This report presents a snapshot picture of the understanding and expectations as of February 2008 and these will inevitably change over time. The future of KiwiSaver, the levels of participation and its impact cannot be extrapolated from the information presented after only six months of operation. In particular, firm conclusions should not be drawn about the differences in the sociodemographic profiles of members and non-members as analysis has not yet been undertaken to determine whether any apparent relationships are likely to be real or simply a result of statistical chance or to interrelationships between variables of interest (eg age, income and ethnicity).

It will be important that subsequent evaluation work, research and KiwiSaver operational information inform a longer-term perspective on KiwiSaver's effectiveness. An outline of the next stage of evaluation work is set out below.

KiwiSaver enrolment patterns

At 31 December 2007:

There were 319,266 active KiwiSaver members plus another 60,145 automatically enrolled members whose status was provisional.¹
187,990 individuals had been automatically enrolled into KiwiSaver, of which 66,142 have opted out (and 60,145 were classified as provisional).
Enrolment levels in the first six months have been higher than originally forecast, with more members enrolling in the first six months than forecast for the full first year.
After an initial surge of opt-ins, numbers of people opting in have slowed and automatic enrolment is now the main method of enrolment.

Membership profile

The following describes the profile of KiwiSaver members. Note that this profile represents the first six months of membership and will likely change over time. It appears that, at this early stage, the overall profile of the member population is influenced by the characteristics of the large number of members who have opted-in to KiwiSaver (as opposed to those who have been automatically enrolled).

Membership in KiwiSaver is fairly evenly split between men and women - 48% of members are men and 52% women. For those members who have opted in, 47% are men and 53% women.
KiwiSaver members tend to be older than non-members, driven largely by the age profile of those members who have opted in (the median age of opt-in members is 47 and that of automaticallyenrolled members is 32). 9% of members who have opted in are under 18.
KiwiSaver members appear to have higher incomes than non-members (the median income for the 2006/07 tax year of members is $33,376 and $24,001 for those non-members who were automatically enrolled but opted out), although there are KiwiSaver members at all income levels. The large number of opt-ins seems to be driving the income profile of all active members as those who have opted in tend to be older and have higher incomes than those who have been automatically enrolled (both those that are active members and those who have opted out).

Providers and schemes

There are 33 KiwiSaver providers (including six default providers) with 48 available schemes. The six default providers were selected by the government for those members who do not choose their own KiwiSaver scheme. The current default providers have been appointed for a term of seven years.

One third of current members are members of default schemes and over half (55%) have made an active choice of scheme. Those remaining are members of employer-nominated schemes. The membership figure for active scheme choice includes individuals who have proactively selected one of the default provider schemes.

Those who have opted in to KiwiSaver are more likely to have chosen their scheme (68% of opt-in members have chosen a scheme compared with 8% of those who were automatically enrolled).
Those who were automatically enrolled are more likely to be members of the default schemes (70%) or to join an employer-nominated scheme (22%).

Awareness of KiwiSaver

Overall levels of awareness of KiwiSaver and knowledge of its various features and incentives are high and research with individuals, providers and employers has found that Inland Revenue's communications activities were generally effective in building understanding across the population.

The most commonly cited reason for joining KiwiSaver through a survey of individuals was to secure an income in retirement (63%), although KiwiSaver's incentives and design features motivated some individuals (31%) to become members. The most commonly mentioned reasons that non-members gave for not joining KiwiSaver were affordability (24%), already having a superannuation scheme (19%) and waiting to see how KiwiSaver established itself or concerns about its sustainability (14%).

Implementation and delivery

Despite short timeframes for implementation, both employers and providers are on balance positive about the way the KiwiSaver has been implemented. The implementation of KiwiSaver has not, however, been without challenges. Issues associated with Inland Revenue systems have been identified and improvements in the timeliness and quality of processing of refunds for those who opt out and the passing of contributions onto scheme providers are being actively worked on. Additionally, there seems to be some variation (or at least at this still early stage and with smaller employers) around the understanding and application of the automatic enrolment process by both employers and employees.

Evaluation next steps

The next phase of the evaluation research will continue to focus on implementation with a particular emphasis on the introduction of compulsory employer contributions, member and employer tax credits, and the administration of contributions holidays and hardship applications.

Benchmark research on superannuation and financial markets will be undertaken in order to prepare the evaluation to address its longer term objectives, namely the impact that KiwiSaver has had on the savings habits and asset accumulation of New Zealanders and on the development of financial markets.

The next evaluation report will consider the full first year of KiwiSaver's operation (July 2007 - June 2008).

¹ Provisional members are those individuals who have been registered for KiwiSaver and are either within the eight week period during which time they can elect to opt out or they have yet to be assigned a scheme provider.

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