KiwiSaver evaluation reports

KiwiSaver Annual Report 2

1 July 2008 - 30 June 2009

IRD Shoulder Number:

Document summary: The second annual report of the KiwiSaver evaluation, covering the period 1 July 2008 to 30 June 2009.

Document content:

Executive summary

At 30 June 2009 KiwiSaver had been in operation for two years. This report provides an overview of KiwiSaver performance and trends for the period July 2008 to June 2009. It compares year one (July 2007 to June 2008) and two (July 2008 to June 2009) results and discusses recent policy changes and their implications.

Enrolments

Over the second year of KiwiSaver's operation (year ended 30 June 2009), membership has grown by 54% to reach more than 1.1 million members. While monthly membership growth has slowed on year one, an average of 32,000 individuals have continued to join KiwiSaver each month. A major contributor to this growth has been the number of people continuing to join KiwiSaver by opting-in via a provider and the ongoing enrolment of children. At the end of the second year, 39% of the total membership had joined through automatic enrolment.

Fund flows to providers

During the year, $2.116 billion in funds from members, employers and the Crown were passed from Inland Revenue to scheme providers for investment; double that contributed in the first year. The value of funds coming from members and employers as a proportion of the total increased in year two and the Crown's proportion declined. Overall, across both years, 42% of funds have been contributed by members, 13% by employers and 45% by the Crown.

Assets under management and scheme choices

At the end of the June quarter, the value of KiwiSaver assets under management had grown to $3.039 billion. The majority of the assets (78%) are under management in nine schemes. Most schemes however, remain relatively small; 30 schemes have assets under management of less than $10 million.

Assets are largely invested in relatively conservative funds; 49% of assets at March 2009 were invested in conservative options compared with 18% in growth-orientated funds. An estimated 56% of funds are invested in New Zealand assets and 44% in overseas assets. Conservative funds have generated the best returns for members over the year to March 2009.

At the end of the year (30 June 2009), there were 52 schemes on offer from 30 providers, following the first signs of consolidation in the market. The number of members transferring between schemes has grown almost three-fold over the year. Some of these transfers are the result of the winding up of two schemes towards the end of the year and members either voluntarily transferring to another scheme prior to the wind up or being reallocated by Inland Revenue amongst the six default products. The number of scheme changes within the three-month funds holding period has reduced significantly suggesting that those who joined in year two have been less inclined to make their own choice of scheme when they first join.

Costs of KiwiSaver

For the year to 30 June 2009, KiwiSaver cost employers $149 million - $355 million in employer contributions made less $206 million in offsetting Employer Tax Credit (ETC) payments. This however, does not represent the full costs of KiwiSaver for employers as it does not include day-to-day administrative and compliance costs associated with accommodating KiwiSaver in the workplace.

For the same period, KiwiSaver has cost the Crown $1.045 billion; $839 million in contribution payments to members' accounts and $206 million on ETC payments for employers. This represents an increase of more than two-thirds on year one costs. Over the two years, the Crown has paid a total of $1.655 billion to members and employers.

Member profile

At the end of year two, the gender breakdown of KiwiSaver members was the same as it was at the conclusion of year one; 52% of the membership base at 30¯June in both years were female and 48% male. The income distributions of members and the eligible population are similar. Just over 50% of both the KiwiSaver member and the eligible population earned up to $30,000 in 2008 and just over three-quarters of both populations earned up to $50,000 that year.

Over the two years, the age profile of those joining KiwiSaver has changed. Over time, the proportion of individuals aged 45 years and above enrolling has declined and the proportion of individuals under 25 enrolling has increased. The proportion of enrolments coming from the mid-age bracket has remained relatively stable over the two-year period.

Member contribution patterns

In April 2009, changes were made to the minimum required member contribution rate. This report has considered both those individuals who were members of KiwiSaver prior to the changes in contribution rate and those who have joined subsequently. It is still very early on under the new arrangements and it will take time to observe the extent to which members choose to contribute at the new lower rate, or whether they opt for a higher rate. Further, members may choose to contribute at different rates at different points in their working life and it will take time for these behaviours to emerge.

At June, most members were contributing at 4% of their salary or wages to their accounts. Twelve percent were contributing at the lower 2% rate. However, of those who joined KiwiSaver since the changes were in place, approximately half were contributing at 2% and just less than half had chosen to contribute at a higher rate (either 4% or 8%). Of those who joined before 1 April 2009, most have not changed their previous contribution rate. This suggests that, most individuals are being influenced by the default arrangements in place at the point that they join KiwiSaver, although the early figures for those joining after 1 April suggest that members are exercising some choice over their contribution rate.

Most members under 18 years are not contributing to their accounts. For the 2008/09 year, 6% of the more than 180,000 members who are children contributed through Inland Revenue to their accounts at a total value of $2 million. This means there are likely large numbers of accounts being managed by providers containing nothing more than the $1,000 kick-start payment. Of the contributing children, almost all are contributing through salary or wage deductions.

The number of members on a contribution holiday has increased considerably over the year due to the first members being eligible for an ordinary contribution holiday from July 2008. At the end of the year, 25,935 members were on a holiday, an estimated 4% of those eligible to be on holiday at that point. The number of individuals on long, five-year holidays is growing.

Evaluation next steps

In 2009/10 the evaluation is undertaking the following:

• Research with individuals to provide early information on the impact of KiwiSaver on individuals' savings and the extent to which KiwiSaver's specific features are influencing take-up and individuals' approaches to managing their accounts;
• Research with employers to determine the impact of KiwiSaver on employers' costs and to determine how employers' approach to KiwiSaver (e.g. in terms of remuneration policy and accommodation of existing workplace superannuation schemes) affects employees' participation;
• Beginning the evaluation of the homeownership features investigating the awareness and expected uptake of first home withdrawal and the deposit subsidy; and
• Updating industry baseline research to profile the KiwiSaver market and assess KiwiSaver's impact on the wider superannuation and managed funds sector.

This research will add to the understanding of the current and potential future performance of KiwiSaver by investigating its costs and benefits, including impacts on the development of the KiwiSaver market, on the savings and asset accumulation of individuals, and on those involved in administration, namely employers and providers.

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Date published: 22 Oct 2009

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