Seventeen years of KiwiSaver: A comparison with the Australian superannuation system 

Recognised global superannuation authority, author of the Mercer CFA Institute Global Pension Index, and Mercer Senior Partner Dr David Knox, compares and contrasts the two systems and finds that New Zealand still has a way to go.

KiwiSaver is only one component of New Zealand’s retirement savings system, which currently ranks number 17 in the world – compared to Australia, which ranks at number 5. But arguably, it is also the most important component and merits more deliberate and bespoke treatment from a national level.

While New Zealand’s universal pension is more generous than Australia’s when expressed as a percentage of the average wage – namely 40% of the average wage compared to 27% for Australia – using this figure alone to judge New Zealand’s entire retirement system can be somewhat of a red herring. For starters, New Zealand’s universality and higher percentage means a higher cost to the public purse with an annual cost of 5.6% of GDP compared to the Australian cost of 2.4% of GDP. On the other hand, both these costs are much lower than the costs in France, Italy and the UK which are 14.3%, 15.8% and 8.0%, respectively.

In 2023, KiwiSaver and Australian superannuation are at similar levels of coverage with both having membership of more than 75% of their respective working-age populations. At the 17-year mark, the impact of New Zealand’s significantly lower rate of contributions is evidenced by the fact that the level of assets only make up 37% of the GDP, compared to over twice that for Australia at the same point in its journey, with the higher contribution rate of 9%.

The level of assets as percentage of GDP is the most important figure when comparing the two systems as this shows the amount of money set aside for the future.

For KiwiSaver to perform as a healthy component of people’s ability to retire well, there are three key changes that need to occur. First, the minimum combined contribution rate – that is, the total from both employee and employer, needs to be gradually increased to 10%. Second, KiwiSaver products should be required to offer retirement income options so there is a focus on retirement income and not just the accumulation of dollars. Third, superannuation must be preserved for retirement otherwise, culturally, its purpose becomes confused. This is not to say that a second savings vehicle could not be encouraged for financial needs such as first home purchases.

At a wider, retirement savings systems level, there are two other changes that need to occur so that individuals can become more confident of being able to retire well.

First, strengthening KiwiSaver regulations need to be improved so providers are required to have policies on conflicts of interest and risk management would help lift the integrity score for New Zealand’s retirement saving system. Our ranking on this currently sits at number 16 in the world while Australia sits at number 6.

Second, culture and conversation around what retirement is and when it happens needs to move away from the current age-based deadline approach that people race towards throughout their working life. All pension systems should enable people to retire gradually and permit them to draw down some of their super while working part time. In New Zealand, we are too focused on the age of retirement rather than the path to winding down. Retiring well also means the ability for labour force participation to become more flexible throughout their working years in order to prepare and phase in retirement. The employment market also needs to permit people to take time out to care for young children as well as ageing relatives.

Having earned a B grade in the 2023 Mercer CFA Institute Global Pension Index, it’s clear there are some things the New Zealand system is doing well on an international scale. But the system must future-proof itself for an ageing population to ensure a thriving economy and quality of life for ageing Kiwis.