KiwiSaver evaluation reports

KiwiSaver evaluation: survey of individuals (technical report)

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Executive summary

• Background and objectives
• Methodology
• Key results
• Objective 1: To gain a greater understanding of the profile of members and non-members and the reasons for membership/non-membership in order to determine whether participation is being successfully encouraged
• Objective 2: To investigate the drivers behind members' use of KiwiSaver features with a view to understanding how longer-term use of KiwiSaver might develop, whether the features are operating as intended, and how the use of these features may influence savings outcomes
• Objective 3: To investigate members' and non-members' attitudes and approach to saving for retirement to understand whether longer-term savings behaviours are being established
• Objective 4: To provide an indication of the extent to which members' KiwiSaver saving is additional with a view to determining whether KiwiSaver will promote greater financial independence in retirement for the target group

Background and objectives

The 2006 KiwiSaver Act states that the purpose of KiwiSaver is to"encourage a long-term savings habit and asset accumulation by individuals who are not in the position to enjoy standards of living in retirement similar to those in pre-retirement". The Act aims to increase individuals' well-being and financial independence, particularly in retirement and provide retirement benefits.

Inland Revenue commissioned Colmar Brunton to undertake a survey to assess the outcomes of KiwiSaver for individuals.

The four key objectives of thissurvey are to collect data that can be used:

• To gain a greater understanding of the profile of members and non-members (e.g. family and homeownership status, ethnicity etc) and the reasons for membership/non-membership in order to determine whether participation is being successfully encouraged;
• To investigate the drivers behind members' use of KiwiSaver features (e.g. contributions holidays and rates, investment funds and homeownership features) with a view to understanding how longer-term use of KiwiSaver might develop, whether the features are operating as intended, and how the use of these features may influence savings outcomes;
• To investigate members' and non-members' attitudes and approach to saving for retirement to understand whether longer-term savings behaviours are being established;
• To provide an indication of the extent to which members' KiwiSaver saving is additional with a view to determining whether KiwiSaver will promote greater financial independence in retirement for the target group.

Methodology

A nationwide face-to-face survey of 825 people aged 18 to 65 years was conducted from January to March 2010. The survey consisted of 1) a randomly selected group of members of the general public and 2) a booster sample of additional KiwiSaver members (recruited from Inland Revenue lists).

The average interview length was 45 minutes. The overall response rates to the survey were 75% for the random component and 57% for the booster sample.

To reflect national population characteristics, data have been weighted by age, gender and household size, and whether or not the respondent was a KiwiSaver member. Separate age-gender targets were set for the random component of the survey (to reflect the age-gender profile of the general population) and the booster component of the survey (to reflect the age-gender profile of KiwiSaver members).

Limitations

The survey is based upon a sample of 474 KiwiSaver members and 351 non-members. There are a number of limitations inherent with sample surveys which include: limited analysis of small subgroups (for example, questions which were filtered to a subgroup of the overall survey population sometimes cannot be broken down for demographic analysis); and issues related to coverage, non-response, and margins-of-error which means that, compared with a Census, the findings from a sample may not exactly represent the actual behaviour of the survey's target population, in this case 18-65 year olds.

Further, the data in this report is based upon self-reported information only. This should be taken into account when reading the report. For example, when someone estimated the size of their KiwiSaver fund, we did not verify their answer against administrative information on the size of their fund. Similarly, if someone said they were enrolled by their employer, we did not verify their answer to determine how they were enrolled.

When considering the combined income demographicin the report, it is important to remember that itdoes not control for the size of the household the income is supporting. There is a difference in the amount of income required for an individual compared to a couple, or a family with dependent children which will influence the extent to which an income can be considered 'high'. This could impact on respondent's behaviour with regard to retirement savings in terms of perceived priority and affordability. Within this report the data related to income by household type suggests that individuals within the survey predominantly earn less than $50,000 while couples are more likely to earn over $50,000. Very few individuals earn over $80,000. Any results reporting income need to considered with caution and bearing this in mind.

The results described in this report reflect an initial analysis of the survey data. More detailed analyses will be undertaken by government departments in accordance with their particular interests in aspects of KiwiSaver policies.

Key results

Salient points from the survey results relating to the four broad research objectives are provided below. Only statistically significant differences between sub-groups of the population are discussed unless otherwise stated.

Objective 1: To gain a greater understanding of the profile of members and non-members and the reasons for membership/non-membership in order to determine whether participation is being successfully encouraged.

Demographic profiles

KiwiSaver members versus Non-KiwiSaver members

The demographic profiles of members and non-members are very similar on most variables (including age, gender, ethnicity, home ownership, and education). Both are also very similar to the overall survey population.

While there are some differences between KiwiSaver members and non-members these need to be read with caution at this stage. More analyses are required to understand what is likely to be a complex inter-relationship between different demographic factors. With this caveat in mind, KiwiSaver members are more likely than non-KiwiSaver members to:

• Be single - 42% of members do not live with a partner compared to 29% of non-members;
• Have no dependent children - 61% of members have no dependent children compared to 50% of non-members; and
• Have lower incomes - 25% of KiwiSaver members have a combined annual income¹ of $30,000 or less compared to 19% of non-KiwiSaver members. Conversely, 21% of non-KiwiSaver members have a combined annual income of over $120,000 compared to only 14% of KiwiSaver members.

The most common employment status for both KiwiSaver members and non-KiwiSaver members is that of full time employment (51% and 49% respectively). However, members are less likely than non-members to be self-employed (7% compared to 13% of non-members) or employed, but not available for work (9% compared to 16% of non-members).

Household membership

• Around one half (51%) of households in the survey population have at least one KiwiSaver member; 33% have one member, 13% have two members, and 6% have three or more members.
• Among couples, the ratio of at least one partner being a KiwiSaver member to neither being a KiwiSaver member (0.9:1) is the same as the ratio of KiwiSaver members to non-KiwiSaver members among single adults (0.9:1).

Psychographic profiles of KiwiSaver members and non-KiwiSaver members

Risk profiles

Overall, the national profile shows New Zealanders tend to be average risk takers or risk averse. In addition, members and non-members are very similar in terms of how they describe their attitude towards risk:

• Just over four in ten describe themselves as a 'very low' or 'low' risk taker (43% of members and 42% of non-members);
• Just under half describe themselves as an average risk taker (48% and 47%); and
• Around one in ten describe themselves as either a 'very high' or 'high' risk taker (9% and 10%).

Knowledge of KiwiSaver

Outlined below are key findings in relation to people's knowledge of KiwiSaver. Note, the source questions to all the results presented below involved prompting respondents with aspects of KiwiSaver and, for each aspect, asking the respondent whether or not they were aware of it.

• KiwiSaver members exhibit higher levels of knowledge of KiwiSaver than non-members for all of the aspects evaluated, although two of these are not significantly higher.
• Some incentives are better known than others. Large majorities are aware of the Government kick start payment (92% of all respondents) and employer contributions (81% of all respondents), but fewer are aware of the Government's tax credit (58% of all respondents).
• Understanding that people in existing jobs can join KiwiSaver is very high (89% of all respondents). Whilst knowledge of the eligibility of the self-employed (70% of all respondents) is also reasonably good, knowledge of the eligibility of the unemployed is notably lower (45% of all respondents). Knowledge of the flexibility afforded to the unemployed and self-employed in deciding how much to contribute is also low (35% and 45% of all respondents respectively).

Engagement with KiwiSaver

An 'engagement score' of 0 to 6 where 0 is 'not engaged' and 6 is 'highly engaged' was constructed using a combination of variables, including entry to KiwiSaver via opting in (either through an employer or through a provider), or being automatically enrolled, active choice of provider and active choice of fund type. A full description is provided in Chapter 2 of this report.

• 15% have an engagement score of 0 suggesting they have made no decisions about their KiwiSaver involvement - they will have been auto-enrolled and stayed with a default scheme with no consideration given to other providers or fund types.
• By contrast, 21% are highly engaged (a score of 6)and will have made informed decisions about whether to join, their provider and their investment type.

Reasons for membership and non-membership

Drivers for joining KiwiSaver

KiwiSaver members were prompted with a list of possible reasons for joining KiwiSaver and asked to indicate which were important to them in deciding to become a KiwiSaver member. They were then asked to say which one was the most important in making their decision.

The strongest drivers for joining KiwiSaver are:

• Government and employer contributions/incentives (77% of KiwiSaver members said this was an important reason and 24% said this was the single most important reason)
• A way to save for retirement (76% and 46%)
• A good and easy way to save (72% and 12%)
• Flexibility (40% and 1%)
• Savings for a home (24% and 10% among all KiwiSaver members).

In regard to the last factor, the proportion of KiwiSaver members who were motivated by the home ownership features is notably higher among those who do not currently own a home (45% gave this as an important reason).

Reasons for not joining KiwiSaver

Non-KiwiSaver members were prompted with a list of possible reasons why they have not joined KiwiSaver. The most common barriers to joining KiwiSaver relate to:

• Affordability (32% of non-KiwiSaver members);
• That there are better financial alternatives (30%);
• Concerns about the security and sustainability of the scheme (25%); and
• Apathy (28% say they have not got around to joining).

Perceived effectiveness of information to inform decisions about KiwiSaver

• 80% of KiwiSaver members, and 64% of non-KiwiSaver members, feel they had enough information to help them decide whether or not to join KiwiSaver.
• 19% of KiwiSaver members, and 21% of non-KiwiSaver members, used Sorted information to help make a decision about KiwiSaver.
• People who have used Sorted information are much more likely than those who have not used Sorted to say they had enough information to help decide whether or not to join KiwiSaver.For example, 91% of KiwiSaver members who used Sorted said they had enough information to help decide whether or not to join KiwiSaver compared to only 78% of KiwiSaver members who have never used Sorted information.

Objective 2: To investigate the drivers behind members' use of KiwiSaver features with a view to understanding how longer-term use of KiwiSaver might develop, whether the features are operating as intended, and how the use of these features may influence savings outcomes.

Automatic enrolment

• 37% of members were automatically enrolled when they started a new job. The profile of KiwiSaver members who were automatically enrolled has relatively high proportions of people aged under 30 years, people with only a school qualification, those who do not currently own a home, those with a low combined annual income and low net worth, and those who are employed part-time when compared with those who joined KiwiSaver in other ways.
• The auto-enrolment feature plays an important role in getting people to join KiwiSaver; 45% of KiwiSaver members who were automatically enrolled when they started a new job say that they would not have joined KiwiSaver if they had not been automatically enrolled.
• The two-week feature appears to be a less important feature with just 15% of KiwiSaver members who were automatically enrolled when they started a new job saying that they would have opted out of KiwiSaver straight away if allowed. Lack of awareness of the opt out option does not appear to be a factor; 88% of those who were automatically enrolled have heard of the opt out option.

Opting in through an employer

• 31% of members opted in through their employer's provider.
• The profile of KiwiSaver members who opted in through their employer's provider has relatively high proportions of males, 50 to 65 year olds, people with no dependent children, home owners, people with only a school qualification, and people in full time employment compared with other means of enrolling.

Opting in through a provider

• 27% enrolled directly through a provider.
• The profile of KiwiSaver members who were enrolled directly through a provider has relatively high proportions of females, people aged 50 to 65 years,home owners, people with a post secondary school qualificationor postgraduate university qualification, self-employed, and people in full time employment compared with other means of enrolling.

Opting out

• 12% of non-members were automatically enrolled when they started a new job, but chose to opt out of KiwiSaver.
• Over half (58%) of people who opted out of KiwiSaver say they opted out either 'immediately' or within the first week of starting their new job. This result suggests that employees may have completed the paperwork for opting out immediately and given it to their employer who then actioned it two weeks later.
• Compared to other respondents, the demographic profile of those who opted out (41 respondents) has relatively high proportions of 18 to 29 year olds, people who do not currently own a home, people with a low combined annual income, people with negative net worth, and people in full time employment.

Closing an account

• Very few (3%) non-KiwiSaver members have closed a KiwiSaver account.

Choosing current provider

• Half (50%) of KiwiSaver members say they chose their current provider, 27% went withtheir employer's chosen provider, 17% say Inland Revenue allocated them to a default provider and 6% were unsure how they chose their current provider².
• The vast majority (85%) of KiwiSaver members were able to name their current provider. Banks are especially dominant among KiwiSaver members who chose their own provider (banks account for 52% of the market share among this group).
• 90% of KiwiSaver members have never changed their provider.
• 27% of all KiwiSaver members considered more than one provider in their decision making about KiwiSaver.
• The strongest drivers for choosing a provider relate to perceptions of financial security (62% of KiwiSaver members who chose their own provider and/or considered what different providers had to offer). In particular, KiwiSaver members looked for a provider with a good reputation, a financially stable organisation, and/or a provider that offered the level of risk they were willing to take. Of those who considered more than one provider, the same factors relating to financial security were helpful to 55% in choosing between providers.
• Familiarity with the provider is also an important driver (39%), with many having had previous experience with their current provider and/or their current provider being their main bank. Other key drivers relate to perceptions of financial advantage (39%), characteristics of the investment funds offered (38%) and recommendations by others (28%).

Choosing an investment fund

• 40% of KiwiSaver members do not know what type of investment fund they have. This lack of knowledge is especially high among those who were allocated to a default provider by Inland Revenue (52%) and those who elected to go with their employer's provider (54%).
• Of those who knew their type of investment, 39% considered more than one type of investment fund. This equates to 23% of all KiwiSaver members. The demographic profile of this group shows relatively high proportions of those in full time employment, high combined annual incomes (over $80,000) and post-graduate qualifications.
• 5% of KiwiSaver members have changed investment funds.
• The top three drivers for choosing an investment fund relate to the expected risk and financial return of the investment (68%), perceptions of flexibility (29%), and recommendations made by others (24%).

Contributions rate

• 43% of KiwiSaver members contribute 4% of their income and 33% contribute 2%.
• Since joining KiwiSaver, 3% of KiwiSaver members who make contributions directly from a salary or wage have increased their contribution rate and 12% have decreased their contribution rate.

Contributions holiday

• 9% of KiwiSaver members have taken a contributions holiday at some time; 6% of KiwiSaver members are currently on a contributions holiday. Reasons for taking a contributions holiday primarily relate to financial hardship due to employment factors (46% of the 9% who have taken a holiday).
• This is despite 57% of KiwiSaver members having experienced a major life change since joining KiwiSaver. Changes in income of more than ten percent and changes in employment status are most common.

Withdrawal of funds

• Just 1% of KiwiSaver members have applied to withdraw KiwiSaver funds.

Homeownership features

• 45% of the survey respondents have either never owned a home or previously owned a home, but not now. Note, this does not include those whose home is now owned by a trust.
• Among those who currently do not own a home, 52% say they are either 'very likely' or 'quite likely' to buy a home in the next five years.
• Prompted awareness of the first home withdrawal feature is markedly higher than prompted awareness of the first home deposit subsidy feature:
  • 76% of the 44% of KiwiSaver members who do not currently own a home are aware of the first home withdrawal feature;
  • 55% of the 41% of non-KiwiSaver members who do not currently own a home are aware of the first home withdrawal feature;
  • 40% of the 44% of KiwiSaver members who do not currently own a home are aware of the first home deposit subsidy feature; and
  • 30% of the 41% of non-KiwiSaver members who do not currently own a home are aware of the first home deposit subsidy feature.
• More specific knowledge of both home ownership features is limited.
  • For the first home withdrawal feature, prompted knowledge is highest for the three year contribution requirements (51% of those aware of this feature knew this) and lowest for the fact that it is available from July 2010 (11%).
  • Likewise, for the first home deposit subsidy, prompted knowledge is highest for the three year contribution requirement (49% of those aware of this feature) and lowest for the requirement that the recipient of the subsidy must have lived in the house for at least six months (15%).
• Although prompted awareness of the homeownership features is relatively low, notable proportions of those who are aware of the features intend to use them:
  • 56% of KiwiSaver members who do not currently own a home, but with prompting are aware of the first home withdrawal feature say they are likely to use the feature.
  • 58% of those who are likely to use the first home withdrawal feature intend to apply for use of the feature before 2015.
  • Intentions relating to how much of their KiwiSaver funds will be drawn are split with 45% of those likely to use the feature intending to withdraw all of their KiwiSaver funds and 42% of those likely to use the feature only intending to withdraw part of their funds. Few plan to withdraw their partner's funds (12% of those likely to use the feature).
  • 72% of KiwiSaver members who do not currently own a home, but with prompting are aware of the first home deposit subsidy say they are likely to use the feature.
  • 70% of those who are likely to use the first home deposit subsidy intend to apply for use of the feature before 2015.
  • 72% of those likely to use the feature intend to use the deposit subsidy as a first time home buyer and 37% intend to combine it with the first home withdrawal feature.
• Reasons for not using the deposit subsidy and home withdrawal features primarily relate to greater importance being placed on retirement savings (28% of a group of respondents that showed disinterest in using the features) and financial constraints (22%).

Children's KiwiSaver funds

• 22% of New Zealanders aged 18 to 65 years who have at least one dependent child in the household have at least one child who is a KiwiSaver member. These parents tend to have somewhat higher incomes than parents with dependent children who are not in KiwiSaver.
• 50% of parents indicate that no one contributes to their children's KiwiSaver funds.
• 43% of parents do not know what type of investment fund their child has.
• The government incentive ($1,000 kick-start payment) is the strongest driver for parents in joining their children to KiwiSaver (83% of parents with at least one child in KiwiSaver said this was an important reason and 34% said it was the most important reason).
• Drivers of choosing a child's fund are generally similar to those for choosing an adult KiwiSaver member's fund. However, expected long term financial returns are especially important in choosing a child's investment fund (51% said this was an important reason and 29% said it was the most important reason).

Objective 3: To investigate members' and non-members' attitudes and approach to saving for retirement to understand whether longer-term savings behaviours are being established.

Attitude to saving for retirement among KiwiSaver members and non-members

Within this survey, retirement was defined as the age at which people stopped working, or cut their hours down to less than 10 per week. Both KiwiSaver members and non-KiwiSaver members were asked questions about retirement. Respondents aged under 25 were not asked questions on retirement because cognitive testing revealed that most would be unable to answer the questions accurately (therefore the proportions about retirement below exclude any respondents aged under 25).

• KiwiSaver members are more likely than non-members to state that KiwiSaver has made themplace more importance on planning financially for the future (39% compared to 28%).
• KiwiSaver members are not any more likely than non-members to have a good or reasonable knowledge of their likely retirement income (37% of KiwiSaver members have a good or reasonable knowledge of their likely retirement income, compared with 36% of non-members).
• It is common for both KiwiSaver members and non-members to have only a vague idea, or no idea, what their retirement income will be (63% of KiwiSaver membersand 64% of non-members).
• It is common for members and non-members to expect to retire at 65 (47% of KiwiSaver members and 41% of non-members).

Extent of provision for retirement among KiwiSaver members and non-members

In order to calculate whether there was a gap between the income required in retirement and the income expected in retirement, the latter was subtracted from the former. This calculation was conducted separately for the amount required to have 'just enough to live on' and amount required to live 'comfortably'.

• Most of those who could give figures for the amount of income they expect to obtain in retirement thought they would have enough to get by, or would have more than enough to get by (78% said this - the same proportion for both KiwiSaverhouseholds and non-KiwiSaver households). ('KiwiSaver households' are those with at least one adult KiwiSaver member present).
• Around half (46% of KiwiSaver households and 55% of non-KiwiSaver households) expect to either have enough for a comfortable retirement, or have more than enough for a comfortable retirement.
• The proportion expecting to fall short of the amount required to 'get by' in retirement is the same for KiwiSaver households and non-KiwiSaver households (22% for both). However, the proportion expecting to fall short of a comfortable retirement is larger for KiwiSaver households (31% of KiwiSaver households falling short, compared with 23% of non-KiwiSaver households).

Anticipated retirement funding sources for KiwiSaver members and non-members

• NZ Super is the source which most of those over 25 say will be their main income source in retirement (44% of KiwiSaver households say NZ Super will be their main source of income in retirement, and 38% of non-KiwiSaver households say this). Lower income groups were more likely to say this, whereas higher income groups were more likely to anticipate using a range of sources to fund their retirement.
• Apart from NZ Super, the top three retirement savings vehicles that KiwiSaver households expect to use as their main sources of income are:
  • KiwiSaver (25%);
  • Income from sale or rental of property (12%); and
  • Stocks and shares or savings accounts (11%).
• Apart from NZ Super, the top three retirement savings vehicles that non-KiwiSaver households expect to use as their main sources of income are:
  • Income from sale or rental of property (22%);
  • Stocks and shares or savings accounts (14%); and
  • Superannuation or work-based saving schemes (10%).

Other saving habits among KiwiSaver members and non-members

• In total 23% of KiwiSaver households have a current superannuation plan, 67% are currently paying off debt, and 54% are making general savings (which are not KiwiSaver or superannuation schemes). The equivalent figures for non-KiwiSaver households are 28%, 69% and 53% respectively.

Objective 4: To provide an indication of the extent to which members' KiwiSaver saving is additional with a view to determining whether KiwiSaver will promote greater financial independence in retirement for the target group.

One of the purposes of the survey was to establish early indications of whether KiwiSaver contributions might be additional to, or substituting for, savings that would have been invested in retirement through other vehicles.

The results discussed below suggest that there are some initial indications that additional saving behaviour is being established by KiwiSaver members.

However, the survey also suggests that there is some substitution occurring (in other words KiwiSaver drawing upon money which would have been used to save for retirement through other vehicles).

This will need to be investigated further and will be a focus of future analyses both with the survey data set and with Statistics New Zealand's Survey of Family, Income and Employment (SoFIE).

Indicative results of additionality among some types of KiwiSaver member

• Thirty eight per cent (38%) of KiwiSaver households say they would have been 'unlikely' to set aside money specifically for retirement in the absence of KiwiSaver. These respondents consider KiwiSaver to be 'an additional' source of retirement saving.
• Compared with the proportion of those who were likely to save for retirement in the absence of KiwiSaver, there are high proportions of certain groups that say they would be unlikely to save for retirement without KiwiSaver:
  • Those with a combined income of $30,000 or less (28% of those who were unlikely compared to 17% of those who were likely).
  • Those aged under 50 (76% compared to 66%).
  • Those with a vague idea, or no idea, about their likely income in retirement (83% compared to 57%).

Where KiwiSaver funds would be distributed in the absence of KiwiSaver

• KiwiSaver households were asked to indicate what they would do with their KiwiSaver contributions in the absence of KiwiSaver.
  • Respondents thought that 27% ofcontributions would be set aside specifically for retirement (either through a superannuation scheme or another saving vehicle) in the absence of KiwiSaver.
  • 24% would be used to pay off mortgage or other debt (which could help the financial situation of people in retirement).
  • 13% would have been invested in something other than retirement.
  • The remaining contributions would be spent on daily outgoings (36%) or something else (1%).
• The results above indicate that KiwiSaver contributions would be spent on a combination of savings and spending - some of which could benefit people in retirement, and some of which may not.

 

 

 

Date published: 03 Aug 2010

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