We had news last week that KiwiSaver members withdrew more than $470 million for hardship reasons in the past 12 months amid continuing economic stress.
Inland Revenue figures showed $470.7m was taken out of KiwiSaver in the June financial year, up 56.6% from $300.5m over the prior period.
Looking back through the figures, there has certainly been a big spike in withdrawals in the past two years, but they have been on the rise for several years.
Since Covid, both the number of people withdrawing funds and the amount withdrawn have risen steadily.
As a barometer of the general economic situation, that isn’t great.
But the bigger problem with these hardship withdrawals is that the ultimate cost is (quite literally) compounded through the years.
More than $1.3 billion of KiwiSaver funds has been withdrawn for hardship reasons in the past five years.
If we do some back-of-the-envelope calculations and assume this money could have earned around 7% returns for the next 20 years, then we get a figure of more than $5b that will be missing from the nation’s pool of retirement funds by 2045.
Given the current trend of withdrawals, I suspect this is a conservative estimate.
I understand why we allow withdrawals for hardship. It doesn’t make sense for people to lose their homes or to go hungry when they have thousands of dollars sitting in a KiwiSaver account, so I’m not advocating that we stop allowing the withdrawals.
However, there is a hidden cost and the situation highlights just how crucial it is for the Government to put more focus on retirement savings.
There is a lot more money coming out of the KiwiSaver scheme to fund people into their first homes.
Since Covid hit, an average of about $1.2b a year has been withdrawn from KiwiSaver for first home purchases.
A home is an asset at least, and home ownership is an important step on the path to financial independence.
I suspect we just have to accept the first home buyer withdrawals as a feature of the KiwiSaver scheme.
If young people are in the scheme from the start of their working life and have $10,000 or $20,000 to put towards a house deposit, they are probably ahead of where many in my generation were at the same age.
But the reality is that as a nation, we’re well behind on where we need to be with our retirement savings.
According to Stats NZ projections, the percentage of the population aged 65+ will increase from roughly 16-17% in the early 2020s to about 19-20% by 2030. By 2050, around 24-26% of New Zealanders are expected to be 65+.
The old-age dependency ratio (ratio of elderly to working-age population) is expected to nearly double between 2020 and 2050.
Our annual superannuation bill already comes in at more than $20b, and Treasury has projected that to rise to about $45b by 2037.
According to Budget 2025 data, New Zealand Superannuation costs $4352 per person per year, making it the third-largest area of government spending after welfare ($6181 per person) and health ($5804 per person).
From the Treasury’s long-term fiscal projections, spending on NZ Super is projected to grow from 4.3% of GDP in 2010 to 7.9% in 2060, an increase of 3.6 percentage points.
It is also rising as a percentage of the Government’s total tax revenue – from about 17% now, it is projected to rise above 21% by 2037.
So we know we have a problem.
It seems almost certain that the age of superannuation will have to be raised to 67 in the coming years – despite the current opposition of NZ First and Labour.
Future governments will almost certainly come under more pressure to means-test.
KiwiSaver, which currently has total funds of $122b, is one of our great hopes.
But the total figure is flattering.
There are more than three million KiwiSaver members so the average fund size is just $37,000.
Hopefully, that will be skewed by a lot of young people who will see their savings grow dramatically in the next decades.
That brings us back to the downside of withdrawing funds early for hardship, though.
We need to be saving more, not less.
Moves by the Government to lift the default contribution rate for both employees and employers to 4% from April 2028 were a step in the right direction.
However, they pale in comparison to Australia’s compulsory scheme, which requires 12% employer contributions.
The scheme has the equivalent of $4.5 trillion invested, making Australia the fifth-largest holder of pension fund assets in the world, not per capita but in nominal terms.
Australia, for the record, also allows people to withdraw funds for hardship, but one suspects fewer people there need to.
If we want to make the most of the KiwiSaver scheme we have, we need to look more closely at who is withdrawing their money and why.
Meanwhile, young Kiwis are voting with their feet and joining the Australian Superannuation scheme ... by virtue of moving to work there.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
