Why Winston Peters wants a KiwiSaver overhaul – Generate Wealth Weekly

THE FACTS

• Winston Peters has proposed making KiwiSaver compulsory, with increased contribution rates for employees and employers.
• Peters suggested raising contributions to 8% initially, then 10%, with tax cuts to offset the costs.
• Currently, only 44% of New Zealanders feel prepared for retirement; higher contributions could improve this.

As KiwiSaver nears its 20-year anniversary, is it time for a reset, with mandatory membership and much higher minimum contribution rates? The concept certainly has merit on a number of levels, writes Greg Smith.

The political debate over KiwiSaver has been thrust into the limelight once again before next year’s election. Over the weekend, New Zealand First Leader Winston Peters called for reforms of our national retirement savings scheme, making KiwiSaver compulsory, with increased minimum contribution rates for both employees and employers.

Peters said that NZ First will campaign on KiwiSaver becoming mandatory and also for both employee and employer contributions to be lifted substantially, to 8% of income at first, and then 10%.

To soften the financial impact, the former Deputy PM has suggested that there will be tax cuts for KiwiSaver members and employers.

The coalition Government has already committed to raising minimum KiwiSaver contribution rates (while halving the maximum government contribution) at the 2025 Budget, from 3% to 3.5% from April 2026, and 4% from April 2028, but Peters’ proposals go somewhat further.

The devil is in the detail and Peters has not said how much his plans would cost or the timeline for implementing his policy, but at first glance, his broad proposals have substantial merit.

Since its launch in 2007, KiwiSaver has been a transformative force in strengthening the financial wellbeing of many New Zealanders and contributing to our broader economic resilience. Yet a significant opportunity remains to further expand our national savings pool and unlock even greater economic prosperity.

Making KiwiSaver compulsory and lifting the required contribution rates substantially would help ensure that many more Kiwis are comfortably prepared for retirement than is currently the case.

According to The Financial Services Council’s (FSC) 2025 Financial Resilience Index, only 44% of New Zealanders feel prepared for retirement. Lifting minimum contribution rates is one clear way to improve this situation.

The Retirement Commission has found that even an increase to 4% for a median salary- and wage-earner (who contributes without interruption over a 40-year working life) means that KiwiSaver funds could last 30% longer than pre-Budget 2025 settings.

There are currently over 3.3 million New Zealanders enrolled in KiwiSaver with total funds now exceeding $100 billion. But there are still around a third who are not contributing. Making KiwiSaver compulsory would bring over a million more people into the fold.

There are strong and well-founded reasons for increasing contribution rates, especially considering that even many enrolled KiwiSaver members are not as financially prepared for retirement as they could be.

The Retirement Commission estimated that at the end of 2024, the average KiwiSaver balance was $37,079 (approximately $42,664 for men and $34,185 for women – the gender retirement savings gap is another issue). About 12% of KiwiSaver members have a balance over $80,000. While 61% of people with balances under $10,000 are 35 or younger, 17% are much closer to retirement, aged between 51-65.

Contrast these figures with the estimated amount of KiwiSaver savings required for retirement. A 2024 study from Massey University on Retirement Expenditure Guidelines concluded that a single home owner needs $271,000 (over New Zealand Superannuation) to retire “comfortably” and $183,000 for a less appealing “no frills” retirement. To enjoy a comfortable retirement, a city-based couple would need a combined lump sum of approximately $1.142 million to support their lifestyle through their golden years.

A rising cost of living (which incomes have failed to match), including aged-care expenses and combined with increased life expectancy have heightened the imperative for Kiwis to put more aside for retirement than was previously the case when KiwiSaver was launched. Today’s retirees are living longer, healthier and more active lives than ever before.

It would also be apt as KiwiSaver approaches its 20-year anniversary that it undergoes a reset to ensure it is completely fit for purpose.

The national appetite for an obligatory superannuation scheme is also likely to have improved hugely since the referendum in 1997, which delivered an overwhelming 91.8% vote against it.

There were significant flaws with that proposal, with workers required to contribute up to 8% of their income, but it was primarily employee-funded and widely perceived as a pay cut. Under Peters’ broad proposals, a carrot would be provided to mitigate the impact through tax cuts.

Interestingly, an initial poll conducted of our followers on social media shows that a clear majority are in favour of lifting minimum compulsory KiwiSaver contributions to 10%.

Around 12% of KiwiSaver members have a balance of over $80,000. Photo / Getty Images

A crucial economic point about a softening of the impact of higher contributions through tax cuts would be that this would be net neutral from an inflationary perspective. People would not be going out and spending their tax cuts (and thereby avoiding the economic perils of previous boom/bust cycles) as the funds would be directed towards lifting their contributions, which would provide a much more productive long-term outcome.

Perhaps no greater advertisement of the merits of a compulsory superannuation scheme, with elevated minimum contribution rates, can be seen than across the Tasman. In Australia, compulsory super is the primary retirement system, and is a pool which exceeded A$4.2 trillion ($4.77t) as at the end of 2024.

Aussie employers must contribute a set percentage of an employee’s income, which is currently 12%. Employees’ contributions (up to a limit) are subject to a concessional income tax rate of 15%. The Australian super scheme has had a bit of a headstart, having been established by the Keating Government in 1992, but has been transformational and has made Australia the fifth-largest holder of pension fund assets in the world. Compulsory super has been a huge factor in Australia’s economic resilience over recent decades.

Further afield, countries such as Sweden, Switzerland and the Netherlands, which have compulsory superannuation or pension contributions, have significantly boosted the financial wellbeing of their populations.

Since its inception, KiwiSaver has provided substantial benefits to New Zealand. At a macroeconomic level, it is serving to reduce the retirement burden for the Government and has created a $100b (and growing) domestic investment pool, reducing the reliance on foreign capital.

KiwiSaver funds provide opportunities for Kiwis to invest in New Zealand companies, infrastructure and bonds, and have also served to deepen our capital markets, improving liquidity and supporting corporate access to funding.

Expanding the size of the scheme would broaden the opportunity for all New Zealanders to invest in local as well as overseas assets.

For members, it has encouraged saving over consumption, boosted financial security and preparedness for retirement, while improving access to home ownership through first-home-deposit withdrawals (over 500,000 Kiwis have done so).

While there is more to do, KiwiSaver has also contributed to rising financial awareness and literacy, wider participation in investing and a stronger culture of saving. It has also provided diversification benefits – many KiwiSaver funds are heavily invested globally, giving New Zealanders exposure to international growth.

KiwiSaver has been a great stepping stone in many ways, but making the scheme compulsory and lifting contribution rates is something that ought to be considered.

There would clearly need to be deeper analysis of Peters’ initial broad-based proposals, including how the billions of dollars of tax cuts that would be needed would be funded. However, every process has a starting point.

Generate is a Kiwi-owned investment manager helping over 170,000 New Zealanders grow their long-term savings through KiwiSaver and Managed Funds.

This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.

To see Generate’s Financial Advice Provider Disclosure Statement or Product Disclosure Statement, go to www.generatewealth.co.nz/advertising-disclosures/. The issuer is Generate Investment Management Limited. Past performance is not indicative of future performance.

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