The ‘enormous bribe’ 50 years ago that cost New Zealand $625 billion. And the price we will pay for decades
Monday, 8 December 2025
In the political musical Hamilton, a young and deeply envious Aaron Burr longingly sings, “I want to be in the room where it happens,” betraying his yearning for being present when the big, nation-shaping decisions are made.
Dr Bryce Wilkinson, a senior fellow at the right-leaning policy think tank New Zealand Initiative, may not have been in the exact room where it happened, but he was certainly present in 1975 when then-Prime Minister Robert Muldoon decided to abolish the compulsory, contributory New Zealand Superannuation Scheme.
Looking back on this pivotal moment in New Zealand history 50 years ago, Wilkinson recalls his take from his time as a “young whippersnapper,” serving as the personal assistant to Secretary of the Treasury Henry Lang.
Wilkinson says a combative Muldoon took aim at the Labour government, promising to overturn Prime Minister Norman Kirk’s scheme, which saw employer contributions of 4% matched by 4% from employees.
Yes, you read that right, New Zealand had the foundations of a KiwiSaver system in place 50 years ago. But Muldoon wanted none of it. And we’re still paying the price.
Muldoon famously unleashed his ‘Dancing Cossacks’ campaign, which compared the Labour Government to the Soviets for running a programme that saw the state investing in private capital.
The concern he was expressing was that the Government would end up having too much ownership of Kiwi companies – a message that struck a chord with voters.
Instead of Kirk’s scheme, Muldoon proposed the fully funded alternative that would eventually become superannuation, accessible to anyone 60 and older.
“This was simpler and less complex, but it was an enormous bribe for the people who were close to turning age 60 or had already turned age 60,” says Wilkinson.
Treasury also wasn’t spared Muldoon’s barbs on the campaign trail.
Wilkinson recalls how the National leader accused Treasury of supporting Labour’s scheme rather than being impartial, which, of course, isn’t how Treasury even works.
“It’s the constitutional job of the Treasury to help the party in power, not in a political way, but to help it achieve its selected programme because voters are king and they put the party in power because of the policies they want,” says Wilkinson.
“It’s not the public service’s job to obstruct that.”
The tension rose to the point that Lang felt nervous when the time came to meet a freshly elected Muldoon, fresh off the campaign trail.
But that meeting did not go as anticipated.
“I was in my office when Henry Lang went up to see Muldoon for the first time to congratulate him and to give him his post-election briefing and talk about the government's programme,” recalls Wilkinson.
“He came back from that meeting and said: ‘It was really good. Muldoon got up from his desk, walked around his desk, greeted me with a smile, and shook my hand. He doesn't usually do that.’
“So that meant Muldoon wasn’t going to be at war with Treasury.”
Treasury did what it was supposed to and assisted Muldoon in unravelling the previous scheme and putting his election promise into effect.
The move would have repercussions we continue to see today.
“There are good economic reasons for favouring a funded scheme,” explains Wilkinson in reflecting on that change in policy
“If you have an unfunded scheme and the population demographics start turning against you, it becomes a Ponzi scheme, and it becomes rather painful. That’s the situation New Zealand's in today.”
The cost of that one decision
What happened 50 years ago was a contest of ideas. Two politicians offered alternative visions of what the country’s retirement system should look like and the voting public made a decision.
Muldoon did what promised to do, and in his defence, he delivered a simple yet effective superannuation scheme that has carried our retirees for the last five decades. But this has not come without a cost.
Fisher Funds chief executive Simon Power asked his team to run the numbers to find out how much our combined savings would be worth if that 4+4 system was allowed to grow and compound over the last 50 years.
“Their high-level estimate, allowing for withdrawals after 40 years, was in the ballpark of $750 billion,” says Power.
“It took us another 32 years before we started to get back on track with the introduction of the KiwiSaver scheme we have today. At the time the Bill creating KiwiSaver was introduced in Parliament, I was not persuaded. I am now.”
Today, KiwiSaver has a combined value of $123 billion, leaving us more than $600 billion shy of where we could have been.
Under the current Government, KiwiSaver employer contributions are set to increase to 4% (provided employees contribute at least 4% of their salaries) and National has promised that this will increase to 6+6% if they are reelected in the next election.
Improving those personal retirement savings is no longer a nice-to-have. It has become essential as our ageing population continues to grow and places increasing pressure on taxpayers.
How long will it take to catch up?
Even with the changes that are being introduced now, it will take decades for New Zealand make up the lost ground.
Dean Anderson, the founder of Kernel Wealth, tells me the gravity of this decision will not be rectified quickly.
“We effectively turned off the savings tap in 1975,” he says.
“That gap isn’t just about policy. It represents hundreds of billions, if not trillions, of dollars in missed compounding over generations.”
A decent chunk of that money would have gone into other assets, most notably property, but the loss of the compulsory savings has directly contributed to how dependent our retirees are on superannuation.
“The changes being made today, such as increasing KiwiSaver contribution rates, are a step in the right direction, but closing the retirement gap is not an overnight fix,” says Anderson.
“We’re realistically looking at 20 to 30 years before we see substantial, broad-based improvements for retirees, and that’s only if these policies are kept stable and strengthened over time.”
What this means for current retirees
The average KiwiSaver balance today is sitting at $37,000, while the average balance for those at 65 is $70,000.
Many of us will continue working beyond 65, but these figures still point to a major dependency on superannuation.
Ralph Stewart, the founder of Retirement Life Income, tells me the average balance is projected to grow to around $87,000 by 2032, depending on when contribution increases are set to come into effect.
However, at the same time, we’re going to see the retirement income gap, which measures the shortfall between the income you are projected to receive in retirement and the amount of money you will actually need to cover your expenses, is expected to grow from $14,000 today to $20,000 by 2032.
Individuals currently living in retirement now or those set to enter retirement in the coming years are set to face a struggle as superannuation battles to keep up rising costs in the coming years.
Stewart says it’s important to remember that people are also living longer.
This means many of those who enter retirement in the next decade could find themselves relying only on superannuation for at least some of what could as long as 30 years outside the workforce.
“I see these people as the forgotten generation,” says Stewart.
Learning from the past
The first important point to take from this is that steady contributions over time can make a massive difference when it comes to your retirement savings.
Every additional dollar saved has the potential to compound over decades, so if you can afford to increase your contribution rate, then you should do it as early as possible.
The other thing is that the politicians we elect have a bigger impact than we might realise at first.
The story of Muldoon is a cautionary tale, a warning of what happens when we don’t think long-term. And that’s something to keep in mind as we start to see the campaign promises roll out next year.
KiwiSaver and superannuation have already been big talking points and that is likely to continue.
As Kernel Wealth’s Anderson explains: “ We can’t afford to be swayed by short-termism or politically driven fearmongering. We all need to be informed and think about how today’s decisions will compound over the next 20, 30 or even 50 years.
“New Zealand cannot afford another Muldoon-sized mistake.”