From the outside, KiwiSaver looks like a huge success story.

The retirement savings scheme - which celebrates its 10th birthday tomorrow - has more than 2.7 million members, with investments worth more than $40 billion.

Dig a little deeper, though, and the gloss isn't quite so shiny.

While the number of members is high, many of them are children who were enrolled by their parents to collect the $1000 sign-up bonus, which has since been scrapped.

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Take away the kids and you are left with 2.4 million out of a possible 2.94 million adults who are eligible to belong to the scheme.

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Why I haven't joined KiwiSaver

More than 500,000 New Zealanders between 18 and 65 don't belong. And of those who do, many are sleeping savers.

Inland Revenue figures show 580,000 Kiwis got no government grant in the 2016 KiwiSaver financial year, which means they didn't put in a single dollar.

Dr Claire Matthews, a KiwiSaver expert at Massey University says there are equity concerns over KiwiSaver. Photo/Supplied.
Dr Claire Matthews, a KiwiSaver expert at Massey University says there are equity concerns over KiwiSaver. Photo/Supplied.

These people aren't on official contribution holidays: they just aren't contributing.

Another 609,000 people put in less than $1043, the amount needed to get the maximum government grant.

When the KiwiSaver Act was passed, its main purpose was clear: encourage a long-term savings habit and help individuals build up their assets to smooth the path to retirement, allowing people to enjoy a similar standard of living in retirement as they did beforehand.

Claire Matthews, a KiwiSaver expert at Massey University, says part of the problem is that we don't know anything about the group of people outside KiwiSaver.

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For those aged 55 to 64, the reason they aren't in the scheme may be that they are already well prepared for retirement and don't need KiwiSaver, she says.

Then there will be a group who say "sure, KiwiSaver is great but I can't afford it".

"For those already working, joining KiwiSaver represents a reduction in take-home pay," says Matthews. "If you are in a low paid job or have high costs, they may be in a position where they can't afford it."

But she says those are the very people who would probably benefit most from joining KiwiSaver.

Matthews says the people who have no excuses are the young - the 18 to 28-year-olds who entered the workforce in the past 10 years.

"There is no reason they shouldn't be in KiwiSaver. Even if they are in a low paid job, they won't have missed the small portion taken out because they won't have received it."

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And Matthews points out that for some people going onto New Zealand Superannuation, what they get is the same as they earned in working life; for others, it is an increase.

"That group of 500,000 is probably quite diverse."

How to join KiwiSaver
• Automatic enrolment when you switch or start a new job
• Sign up directly with a KiwiSaver provider
• Sign up through your employer if they have a relationship with a scheme

The Government has previously talked about a one-off auto-enrolment which would probably capture most of the people who aren't in the scheme.

But Matthews says it would not be a popular move.

"The problem is there is a bit of public push-back because there are some people who really don't need to join KiwiSaver and some who can't afford it."

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Instead, she suggests a change so that everyone starting their first job would be compulsorily enrolled, without the current opportunity to back out.

"You shouldn't be able to opt out."

Matthews says there are valid reasons to let people take a break from retirement saving - having a family or losing a job, for example - but once someone is working and earning again, they should have to save.

The risk is that if New Zealand doesn't do anything about its snoozing savers, inequalities will be created at retirement, between those who joined KiwiSaver and saved, and those who didn't.

"Potentially, it is going to create a problem with equity at retirement," she says.

Even a worker on the minimum wage could potentially save $195,067 by contributing 3 per cent of their earnings between the age of 25 and 65. That would give them an extra $205 a week a live off until age 91, on top of NZ Superannuation.

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That's more than enough to buy the occasional bottle of wine, eat out and have a bit of fun - if you own your own home, mortgage-free.

Matthews says that while the gap between the savers and the non-savers won't be that big at the moment, in another 10 years, the power of compounding interest will widen the gulf.

"For someone who joins now at 18 to 20 and has 45 years of savings, that could be a huge difference in terms of the lifestyle you get in retirement.

"I think it means the Government needs to look at it quite seriously."

It's a sentiment echoed by Bart Frijns, a finance professor at AUT who is worried the Government is just kicking the can down the road.

"The problem is, you are postponing it 30 years into the future."

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Frijns says people in that group of 500,000 who don't make provisions for their retirement are going to have to rely on NZ Superannuation, and hope it will be enough.

"It is something people need to think seriously about."

Frijns believes the scale of non-membership highlights the fact that, 10 years on, many people still struggle with how KiwiSaver works.

"Does financial information help those people? You can provide information but you can't force people to read and act on it.

"Will people actually make the right decision for themselves? Are they motivated to do this?"

If the answer is no, he says it is up to the Government to take action.

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Sir Michael Cullen, former Labour Finance Minister and the architect of KiwiSaver, is worried about the group not in KiwiSaver.

"It does worry me that a lot of the people in that group are probably on low incomes," he says.

Cullen says those who don't join the scheme will be considerably worse off than their peers who do join.

"That is quite a worry when it comes to long term equity, particularly with more people ending up in retirement without a home or a mortgage-free home.

"That is an important social consideration."

While getting those people on board now might cost a bit, if they don't join and end up living off NZ Superannuation alone, and renting in Auckland, that could cost the Government a lot more, he says.

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It is not just the non-members who are a worry.

Matthews says the 580,000 people who have joined but aren't saving are virtually the same as those who haven't joined at all.

"They are members in name only," she says.

But Matthews says the risk is that those people think they are okay because they are in KiwiSaver.

"And they are not. So potentially there is a bit of a problem there."

Like people on an official contribution holiday, she believes the non-contributors need to be reminded every 12 to 24 months to review their situation.

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And she believes it should be the scheme providers' job to do that.

"The providers are collecting reasonable fees. If they can get more people contributing, it will be beneficial for the fund manager as well as the individual."

Matthews says an annual statement isn't enough to do this.

"It needs to be something that forces them to do something about it." That could be a phone call, or an incentive to email back or go online.

David Boyle, group manager investor education at the Commission for Financial Capability, says the people in KiwiSaver not contributing anything are the ones who terrify him the most.

"Either they are saving nothing or less than $20 a week."

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Which means they are earning less than $34,000 a year, or suggests there are a lot of seasonal workers or short term contractors.

Boyle says these are people who have been auto-enrolled or have elected to go into KiwiSaver, and they are growing in number every year.

"That is a trend that is worrying."

He says KiwiSaver providers have done some work to understand this group, but he thinks more is needed.

"I can't believe all of them can't afford the $20 a week. There is something else going on there."

How to get your $521 from the government

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But Finance Minister Steven Joyce says it is not up to the Government to force people to save for their retirement because individuals may have better uses for their money.

"The Government encourages people to join but doesn't require it."

"I'm not a fan of removing that ability for people to choose and decide for themselves."

Joyce says people who are not saving in KiwiSaver may have decided they want to do other things with their available funds, such as investing in their own business or paying down mortgage debt.

"One of the benefits of KiwiSaver, of your money being locked in until retirement, is also one of the reasons some people make other choices."

He also points to a report carried out in 2015 which found that a one off auto-enrolment would only boost membership by a small amount.

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With 75 per cent of working New Zealanders already in KiwiSaver it is not something the Government is considering, he says.

For those who say they can't afford to join KiwiSaver, Joyce says the Government is working on that by improving incomes through its family incomes packages.

He says boosting incomes may give people more money to do things like join KiwiSaver.

"It gives people more choice."

When it comes to the question of equity he says KiwSaver can't be viewed in isolation.

"It has to be coupled with New Zealand Superannuation."

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Joyce says NZ Superannuation does adddress the equity concerns and provides a reasonable level of income for those over the age of 65.

NZ Super is universal which means it is paid to everyone who is eligible regardless of their assets and people can continue to work past 65 and receive it.

Joyce believes KiwiSaver has been successful in many ways but says there is still a debate over whether it has created new savings.

A Treasury report undertaken in 2015 questioned this but also said KiwiSaver had only been running for a short time.

The Government plans to carry out more research on this area in the future, Joyce says.

Richard Klipin, chief executive of the Financial Services Council, whose members include KiwiSaver providers, believes the missing piece with KiwiSaver is the lack of engagement.

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"The insight from research is that most people aren't actively engaged with their KiwiSaver.

"But we are not alone - this is a global issue."

Klipin says there is no one answer to this challenge.

We can't look across to Australia either, because many of the issues here aren't a problem for them, given that Australia has a compulsory scheme which doesn't allow contribution holidays, nor allow people to take out money for their first home.

In Australia, the contribution levels are set and here we are still having the tough debate around what is the right amount and how much is enough, says Klipin.

"I think the challenge - and clearly the opportunity for KiwiSaver providers - is to develop a raft of tools to engage members more and more.

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"At 10 years on, there is plenty of opportunity to do more."

Boyle says he gives KiwiSaver a score of six out of 10 so far.

"I think we have got a lot to celebrate. It is well beyond Government expectations in numbers. But there is a lot more work to be done. I think we can do better.

"We need to help KiwiSaver negotiate its adolescence. The next 10 years will be just as important."