Not that I really have a problem with government savings decreasing, I’m not sure it’s the most efficient allocation of resources for the government to hoard a bunch of money. But maybe that’s just the right wing economist inside of me trying to steal the limelight!

I agree with your analysis, although when we talk about rich and poor we aren’t generally referring to people at different stages of their life cycle are we? I always assumed we were talking about the difference between a CEO and a factory worker and their incentives to save, not where they are in their life cycle.

That said, life cycle issues clearly impact individual savings behavior in the way you described.

I wouldn’t say that its only the rich that have limited incentives to increase savings from Kiwisaver, after all according to income smoothing we should all save during the high earning period of our life-cycle.

The main thing is that Kiwisaver offers a much higher rate of return than other investments (given that the government throws money at you), as a result there are income and substitution effects on your savings level when you take money from the bank and put it in Kiwisaver. Assuming that the substitution effect dominates, a person should save more.

However, the effect on national savings is more likely to be negative, as the government is reducing public savings to fund Kiwisavers returns.