On July 8, AARP and the Brookings Institution held a panel discussion on New Zealand’s government-sponsored retirement savings plan, KiwiSavers. KiwiSavers is a subsidized, voluntary defined contribution retirement savings plan. The New Zealand government implmented KiwiSavers in 2007 in order to increase retirement savings amongst the country’s citizens.
Before KiwiSavers, New Zealand residents relied on three main sources for retirement income: the country’s mandatory government retirement program “New Zealand Superannuation” or NZS (similar to Social Security in the U.S.), employer-provided pension plans, and private savings. KiwiSavers serves as a supplement to employer-provided pension plans, which not all citizens participate in, and NZS.
KiwiSavers participants can choose a specific scheme or plan and contribute 3, 4, or 8 percent (or none) of their paychecks to the program. Employers must contribute a minimum of 3 percent of an employee’s paycheck. All New Zealand residents under age 65 can participate in KiwiSavers (children can participate with their parents’ consent), and accounts move with the employee. Any financial service provider can apply to become a KiwiSaver provider, as long as they are approved and registered through the government. Thirty-one different providers currently offer KiwiSavers services.
KiwiSavers has several unique features. First, the program automatically enrolls participants. Rather than allowing citizens to default to non-participation, the program automatically withholds a 4 percent contribution rate from working citizens. Citizens can choose to opt out of the program, or alternatively, choose lower or higher contribution rates. People tend to exhibit a high amount of inertia when it comes to saving, and empirical research shows that automatic enrollment has a dramatic impact on participation outcomes. New Zealand was the first country to introduce a national auto-enrollment savings program (the United Kingdom is one of a small handful of countries to enact a national automatic enrollment savings program). Over half of the eligible population in New Zealand now participate in KiwiSavers, with 72 percent of 18-24 years old participating in the program.
A second key feature of KiwiSavers is its “kick start” financial incentive. To encourage participation, the New Zealand government gives a $1,000 tax-free lump sum to any new member’s KiwiSavers account. Members additionally receive a tax credit of over $500 if they contribute at least $1,000.
Although an initial evaluation found that KiwiSavers had only a marginal impact on overall national savings, the program is now conducting a longitudinal analysis on individual savings practices. Still, KiwiSavers has successfuly enrolled a growing number of participants and could be an example for the U.S. While current politics may prevent a similar national program at the federal level, states can look to KiwiSavers for designing their own government-sponsored retirement plans.