More questioning of the efficacy of Kiwisaver
On stuff I noticed the following comments by Michael Littlewood.
“Simply citing that there are 2.2 million members and $19 billion in the scheme doesn’t actually tell you anything,” the paper’s author, Michael Littlewood said.
“It just tells you that KiwiSaver’s popular – and why wouldn’t it be, with the incentives that it has.”
Littlewood said with the limited data available, there was no way of knowing whether New Zealanders would have saved just as much without KiwiSaver.
This is true. Back in 2008 we mentioned research by John Gibson and Trinh Le calling into question claims that Kiwisaver had “increased national savings” – in fact suggesting that the make-up of Kiwisaver had reduced national savings.
At my most generous I tried to state that, perhaps, the reasoning behind Kiwisaver subsides was the change the “type” of saving rather than the level. However, there is no evidence or logic behind the claim that Kiwisaver in its current form would increase savings. Also remember, when someone “has” to save via Kiwisaver they could fund this by cutting consumption or cutting other forms of saving – as a result, it is only likely to impact upon saving when people are already credit constrained (and therefore are already saving “too much”) – implying that any increase in savings due to such a scheme may actually be a bad thing!
The initial idea was that we would have an “opt-out” scheme without subsides. This would allow us to see whether individuals were being “time inconsistent” with their savings behaviour. This was a very good idea. However, the subsides have made it pretty much impossible to test this, and simply act as a form of middle class welfare given their structure.
And before anyone starts saying “blah blah capital deepening” let me say a couple of things, if this doesn’t actually function to increase savings rates it is really just changing the composition of funds heading to a group so it sound a bit like self-interest. Also remember there are trade-offs.