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1  Background and Motivation

1.1  The KiwiSaver Scheme

New Zealand's incentivised, voluntary defined contribution retirement savings scheme KiwiSaver has been in existence since 2006 and schemes have accepted contributions since 2 July 2007. The legislative purpose contained in section 3 of the KiwiSaver Act 2006 sets out three aims for a principally workplace-based savings scheme:

  • Encourage a long-term savings habit and asset accumulation by individuals who are not in a position to enjoy standards of living in retirement similar to those in pre-retirement.
  • Increase individuals’ well-being and financial independence, particularly in retirement.
  • Provide retirement benefits.

In plain language, KiwiSaver's purpose is to create a workplace-based savings system to maximise accumulation of wealth and develop a savings habit to give individuals in retirement a standard of living comparable to that in pre-retirement. KiwiSaver's design features are similar to many voluntary defined contribution schemes internationally: it is essentially an opt-out workplace savings scheme with employer and employee contributions in addition to Government incentive payments to encourage membership. The auto-enrolment facility has been very successful in promoting high rates of enrolment.[1] Contributions are locked in (with few exceptions) until age 65, whereupon they can be withdrawn at will. The scheme has similar objectives to many state-supported retirement savings schemes: to provide retirement benefits and smooth consumption over individuals' lifetimes.

While not a specific purpose in the KiwiSaver Act, market participants, the Government and policy makers have recognised two further objectives to KiwiSaver:[2] (i) increasing levels of domestic saving and (ii) contributing to capital market development by pre-funding a greater level of future retirement income and channelling a greater proportion of domestic savings into financial assets. KiwiSaver was also promoted as a means to promote capital market development as a second order benefit in addition to boosting household savings.

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