The key to KiwiSaver: compulsion and higher contributions

Tuesday, 25 November 2025

Former minister Simon Power says New Zealand can no longer rely on the current system to sustain future retirement savings. He argues contribution rates and participation must rise, and that a public debate on compulsory KiwiSaver is now essential.

Martin Hawes is a financial writer and presenter, and has written 25 personal finance books including his latest, the bestselling Retirement Ready. He writes a weekly column.

OPINION: Simon Power thinks we should have a conversation about KiwiSaver. Power is a former cabinet minister who since leaving politics has built a successful career in finance. He thinks we need to talk about KiwiSaver contribution rates and whether it ought to be compulsory.

On Sunday afternoon the National Party announced a new policy that they would lift contribution rates to 6+6 (6% from employees matched by 6% from employers). That would give a 12% total contribution against our current 6%,which many people think much too low,. That would double the 3%+3% that we have now.

It looks like Power’s conversation has started.

A 12% contribution rate would be much more realistic – it matches Australia and gets closer to some European countries. A 12% contribution rate is the sort of number necessary if you want to enjoy a good retirement.

Retirement income is a major issue in New Zealand: 40% of retirees live on NZ Super alone, and another 20% have only up to $100 per week more. That means 60% of retirees find it hard scrabble in retirement.

The amount that you contribute to a savings scheme is likely to be the biggest factor in determining how much you end up with. We can sweat to find the best KiwiSaver account with the highest returns - and that will make a difference. However, increased returns are unlikely to add anything like as much to your final balance as the amount that you contribute.

You can do numbers till the end of time but any reasonable increase in investment return that you might contrive is unlikely to beat increased contributions. If you want to grow your savings, the best place to look is your contributions.

Christopher Luxon speaking at a National Party function where he announced a policy to increase KiwiSaver contributions if elected next year.

At the moment in New Zealand, our contributions to KiwiSaver are set at 3%+3% which is far too low to fund a good retirement. Many do not even contribute that amount. The self-employed often make no contribution (they have little incentive) and many employees cannot afford to forgo 3% of their salary. Regrettably, some employees have their KiwiSaver contributions cashed up and paid as salary - the 3% never goes near a KiwiSaver account.

Have a look at a KiwiSaver calculator. It will show that you will not have a great retirement if you contribute at a 3%+3% contribution rate.

The problem with doubling contributions to 6%+6% is affordability. In a lot of cases, both employees and employers would struggle to pay an extra 3%.

Given that affordability problem, National policy could make the divide between the retirement haves and have-nots even greater.

Many employees would have to contribute lower rates or could drop out of the savings scheme completely. Those who could find the additional contribution would do well, but those who could not contribute much will continue to a poor retirement.

Meanwhile the self-employed would still have no reason to join up.

To get to widespread retirement savings at decent contribution rates is where we need compulsion, which was introduced into Australia in 1992. Without compulsion we will continue to have a big percentage of retirees close to retirement poverty.

Over time, we need more people with more savings - and to be less reliant on NZ Super.

Robert Muldoon, who killed compulsory superannuation contributions when he was prime minister in the 1970s.

Power is right that to get that we need a conversation about compulsion and increasing the amount we contribute. I do think we will need to go to 6%+6% - but go there slowly. National is planning to do it over six years; but to make it easier on low-income earners and on businesses, I would stretch that out to at least 12 years (it took Australia 12 years to go from 9% to 12%).

We need to address retirement savings. I think a very gradual increase in contributions along with compulsion is the answer.

We Kiwis have an instinctive aversion to compulsion. However, we need to get over ourselves and bring compulsion back. Some older readers with long memories may remember the third Labour government (1972-75) which started a compulsory superannuation scheme. However, Sir Robert Muldoon won the 1975 election by showing Cossacks dance across our black and white television screens, and so suggested that compulsory super would lead to state dominance and communism. His feet were no sooner under the prime minister’s desk when he killed off that Labour scheme.

I wonder how much better retirement might be now had Muldoon lost the 1975 election.

Martin Hawes is not a financial adviser and the information and opinions here should not be taken as financial advice.