When former Labour Finance Minister Michael Cullen first mentioned KiwiSaver in his 2005 Budget speech, Treasury expected perhaps 5 to 10 per cent of the working population to sign up to the new retirement savings scheme.
Six weeks before its launch on July 1, 2007, Labour pumped up the incentives and now, just over a week out from KiwiSaver's fifth birthday, 1.95 million New Zealanders are in the scheme and $11.8 billion is sitting in their retirement savings accounts.
Many in the industry have hailed the number of sign-ups as a success, especially as many of the members are young.
About 55 per cent of the eligible population are now in the scheme and more than 900,000 of its members are under 35.
Even better, research by the Inland Revenue Department (IRD) in 2010 found that about 29 per cent of the money in KiwiSaver was new savings.
But critic Michael Littlewood, co-director of Auckland University's Retirement Policy and Research Centre, says that saving has been purchased at an enormous cost to the taxpayer.
The Crown has so far ploughed $4.4 billion into the scheme through kick-start subsidies, the member tax credit, fee subsidies and employer tax credits.
Nor is there any strong argument for KiwiSaver having increased the total amount of national savings.
The IRD's 2011 KiwiSaver report said that over the 10 years to 2021 the net contribution to national savings would be "marginal at best in the longer term, and may in fact reduce national savings."
But Chris Douglas, Australasian co-head of fund research at research company Morningstar, argues that national savings should not be the only measure of success.
"The intangibles are important too - establishing a savings habit, opening up the debate and discussion, cleaning up the industry and empowering the regulator.
"Whether people are saving a lot more - there isn't a lot of impact yet. It's more about creating a habit for people that have never thought about retirement savings."
Tough financial times have also taken a toll on those able to contribute to KiwiSaver. The number of people taking a contribution holiday, which includes those suffering financial hardship, hit 81,748 last month.
The proportion of members who are actively contributing to their scheme has dropped from 77 per cent in 2009 to 55 per cent as of March last year, although this figure is distorted by the number of children in the scheme, and the self-employed.
The average amount saved so far? $6051.
One thing that is clear is that KiwiSaver has been a lifeline for the investment management industry, which had been finding it tough to attract new money before the scheme began. According to researcher FundSource, KiwiSaver now accounts for some 40 per cent of retail funds under management.
At the end of 2008 there were 31 KiwiSaver providers and 46 schemes. As of March last year there were 30 providers and 52 schemes.
While the number of providers has stayed static, players have exited and entered the industry. Carmel Fisher's Fisher Funds has been one of the biggest acquirers, buying the Huljich Wealth Management business in April last year and taking over the Credit Union scheme and First NZ Capital's KiwiSaver business.
This year Kiwibank bought Gareth Morgan's KiwiSaver business for an estimated $50 million.
New entrants are still appearing, with the BNZ expected to launch a KiwiSaver scheme this year.
Despite the large number of providers it is the default schemes and the banks which hold the reins of power.
ASB and ANZ have about 45 per cent of the market between them and the eight largest providers have 95 per cent of the funds under management.
The six default providers - the companies picked by the government to manage those who are automatically enrolled in KiwiSaver when they start or switch jobs - hold $8.8 billion of the $11.8 billion invested.
Westpac is the only non-default provider to have garnered more than $1 billion in funds under management, thanks to its wide distribution network.
Further consolidation is widely expected across the industry, although it may take some time.
THE DEFAULT ADVANTAGE
The Ministry of Economic Development is in the process of reviewing the default providers and a decision on their future is expected by the end of this year, although the current default providers will keep that status until June 2014, when their contracts run out.
Littlewood, who is also a director of the trustee company of non-default KiwiSaver provider Superlife, says default providers got an unfair advantage by being handed thousands of members.
"The default system is flawed," he says. "There have already been several major changes to the default providers which should have triggered a review."
OnePath (formerly ING) has now been fully acquired by the ANZ (it previously had a 50 per cent stake), while AMP bought AXA, merging two of the biggest players.
Littlewood believes the default system should either allow all providers to take part, as long as they meet certain standards, or none, in which case the money should sit with Inland Revenue until savers decide which manager to invest with, or be placed on a contribution holiday after one year.
Actuary Jonathan Eriksen is also firmly of the belief that the default system should go.
"You don't need any default providers because everybody has heard of at least one bank or provider.
"When KiwiSaver first launched nobody knew how successful it was going to be. Now it [the default system] is redundant."
He says having no default players would reduce the government's risk and further emphasise that it does not guarantee KiwiSaver savings.
But Massey University senior lecturer Claire Matthews believes default providers should stay to help people who can't decide on a manager, although she says the number could be reduced from six to four.
She believes the review should look at the extent to which a provider is relying on auto-enrolments to grow its business.
"If that is the case maybe they shouldn't be a provider," she suggests. "Default members may be okay to start with but you would expect over time they would be able to supplement it."
One default provider which has struggled to attract active sign-ups has been Mercer. While it has 78,000 members, it got all but 10,000 of them through its default status.
Mercer New Zealand chief executive Martin Lewington is confident the company can stand up to the scrutiny of being a default provider, but says it will depend on the measures used when deciding who keeps the contracts. "KiwiSaver is about superannuation and that is our core business."
AGES AND STAGES
One change which is being widely debated in the industry is the idea of shifting the default KiwiSaver funds away from their present conservative investment strategy.
At present, default funds cannot invest more than 20 per cent of their money in "growth" assets - essentially, shares and property.
A "lifestages" or "lifecycle" approach would change that, by linking the age of an investor with the types of assets in which their money is invested.
Young savers would be automatically put into growth funds, with higher levels of investment in shares and property, then moved into balanced and then conservative funds as they got older.
John Body, managing director of ANZ Wealth and Private Banking NZ, is keen to see a lifestages option become the standard because investors need the right asset allocation and he doesn't believe that's the case now.
"If you are a young saver and you invest the minimum you are only going to end up with around $72,000 in a conservative fund. That's just $100 extra a week on top of New Zealand Superannuation," he says. "We feel strongly that we are shortchanging savers by having the default option set at conservative."
About 500,000 of KiwiSaver's 1.95 million members are still in default schemes and Body says the inertia that helped get them into KiwiSaver in the first place probably means that won't change during their savings lifetime.
"It's very difficult for a 25-year-old saver to go pay for financial advice. We believe people in the default schemes will end up there for the next 40 years."
One downside of the lifestages option is that high-growth funds are likely to be more volatile than more conservative options - a potential problem for young savers whose priority is using their KiwiSaver money to help buy a house.
But Body says that group doesn't make up a huge percentage of KiwiSaver members, and the policy has to be right for the majority.
His colleague David Boyle, general manager of funds management for ANZ Wealth, admits such schemes are more expensive. "When you are looking at more growth there is a higher level of management fees."
For a growth fund, ANZ's KiwiSaver schemes charge an annual 0.73 per cent of funds under management, compared with 0.54 per cent for a conservative fund.
"It's not substantial and if you are starting off at a younger age there's not going to be very much in the account," says Boyle.
A lifestages option would also allow savers to put their money in and virtually forget about it until retirement.
Body says that while it's true investors wouldn't have to do any hard work, there would be trigger points where they could change where their money is invested and take greater control.
"At the moment we are defaulting people to the wrong asset allocation and hoping they will get financially literate."
However actuary Jonathan Eriksen is not in favour of the lifestages approach because many young people are using KiwiSaver for their first home.
"Why would you want money in a highly volatile growth fund if you are saving a deposit?"
He says lifestages also ignores the global financial crisis and the way growth funds have been thrown about in recent years.
"They carry far too much risk for the average punter."
Eriksen initially argued with Michael Cullen that the default funds should be balanced but is happy his advice was ignored and the conservative option was chosen instead.
Massey University's Matthews says there are pros and cons to both the lifestages and conservative options.
"The risk of putting people's money into more risky assets is that if it all goes to custard that is going to be really negative for them.
"At the same time, if young savers are in a conservative fund it has the potential to be very negative over a lifetime."
TAKING IT OUT
Next month KiwiSaver reaches another milestone, when the first retirees will be able to start withdrawing their money.
In July alone, 17,500 people will be eligible to withdraw their savings, and 75,000 will qualify in the year to June 30, 2013. To be eligible, savers must have been in the scheme for five years and be over 65.
ASB Bank executive general manager, wealth and insurance, Blair Turnbull says his biggest fear is that people see the money as a Lotto payout. "People need to realise at 65 they may still have another 15 years to go. It's important they don't see it as a windfall."
Matthews says what is needed is an annuities market. Buying an annuity allows a person to secure a certain income for the rest of their lives, removing the worry that they will outlive their savings. In this country, however, the annuities market is virtually nonexistent.
"It is starting to be discussed and recognised that it is an issue but as the number of retirees getting money out grows there is going to be greater demand.
"It's not going to be needed in the next five years but we need to start planning for it now."
ANZ Wealth's Body believes that is a decision for five years' time.
"The average balance for withdrawals this year is $15,000. New Zealand needs to invest in an annuities market but it's not something individual providers can do themselves. It has to involve the policymakers."
From next April all KiwiSaver providers will have to provide investors with quarterly reports, showing investment performance, fees and how their money is invested.
Until now mandatory communication has been limited to an annual report and an annual personal statement, although most providers also offer information online.
ANZ Wealth's David Boyle believes the extra reports will lead to more discussion of performance. "To some degree that will lead to switching. But what we want to avoid is quarterly switching. The industry has got to be very mature about talking about performance."
Morningstar's Chris Douglas says it is only natural to assume government incentives will shrink. "The focus is going on how much people contribute themselves."
Matthews says she believes that while the $521 member tax credit should be retained in the short term, it should eventually go.
"It is a significant part of encouraging members into the scheme and helping people in the early stage to get funds up to where they are of value.
"But in time the government could remove or limit it to the first five years of membership."
Littlewood is also not convinced future governments will keep the member tax credit.
"They have already cut it in half and dumped the tax-free status of the employer contribution.
"The next step would be to get rid of it altogether and go back to the original idea - a modest nudge into something that is a good idea."
In fact he believes all subsidies barring the $1000 kickstart should be dropped - including employer contributions. Employees should not miss out on a salary rise, argues Littlewood, because they choose not to - or can't afford to - be in KiwiSaver.
"Otherwise we will continue to see the poorest people missing out. It should be individuals that decide what to do with their money, not their employers."
HOW MUCH IS ENOUGH?
Pressure is also mounting on savers to increase their contributions. Both ANZ and ASB released surveys in the past week showing actual savings are well below the level needed to deliver the incomes people would ideally like to live off in retirement.
Matthews believes combined contributions - employer plus saver - should be about 10 per cent of income. "That is why it probably won't happen in the short term. It needs the economy to be healthy and for the public to be feeling better off."
But actuary Eriksen is not convinced contributions should rise.
"Two per cent is fine. That will give people enough to top up New Zealand Superannuation. If people want to have a comfortable retirement they should do something else. I think Australia is nuts for putting it up to 12 per cent."
Morningstar's Douglas says people always talk about how there has been a lot of tinkering with KiwiSaver and they want it to stop.
"But it is not going to stop. New governments will come in and want to put their stamp on it. It is a big area and we will see change. Hopefully it is all for the better."
Douglas predicts a wider variety of funds in the future, and development of an annuities market.
"When you think about retirees now, they are the test case. The industry will get better - I think annuities will come. There will be growing demand for a regular income.
"People are still playing catch-up. There has been such a lot happen in five years and it has gone fast. The industry is learning as they go.
"I do think KiwiSaver is getting to a really good place. There is better practice and global reporting coming and transparency.
"We are going to see more debate happening around retirement and more flexibility coming in so people who want to manage the money themselves can be more tactical. There will be more specialist products."
But Douglas also warns that the performance of some funds will disappoint investors. "We haven't seen that to date because the products have been very vanilla so far."
Then there is the big risk - that a KiwiSaver provider could fail.
Financial Markets Authority chief executive Sean Hughes has said there needs to be more prudential regulation of KiwiSaver.
ANZ's John Body says he would like to see licensing of fund managers - something which is on the Government's to-do list - and additional hurdles for Kiwisaver providers.
"We would like to have no risk to the KiwiSaver brand from anyone having a failure. We need to failsafe it."