Did NZ make a catastrophic mistake when compulsory super was scrapped in ‘75?
Sunday, 12 July 2026
Tim Hurdle is a former National Party senior adviser and is a director of several companies, including Museum Street Strategies, a public affairs firm, and is Freshwater Strategy’s New Zealand collaborator.
OPINION: We prefer to view our history through a distinctly rosy filter. We speculate on what could have been.
A common refrain today is that New Zealand made a catastrophic mistake when the compulsory New Zealand Superannuation Scheme was scrapped in 1975. That National’s “dancing Cossacks” television election ad predicting a total state takeover of the economy was an unfair political smear. But this overlooks the details and the reality of the time.
Our economy was dominated by meat, wool and dairy. We had just a tenth of the tourists we have today, no wine and barely any kiwifruit. And don’t even think about the restaurant “scene”. Later, clever Kiwi entrepreneurs took risks and expanded our economy with their innovation.
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The scheme was a retirement policy, but the secondary intent was to create savings to solve New Zealand's chronic shortage of domestic investment capital, building up to a future where 8% of the country's total wage bill would be funnelled into a state-run entity: the New Zealand Superannuation Corporation. Where that money was to be invested was the 1974 scheme's most controversial feature.
The approach was a long way from Richard Seddon’s Old-age Pensions Act 1898 which made New Zealand a global pioneer in welfare. Seddon's pension was strictly limited to the elderly poor who were deemed to be “of good moral character” and leading a “sober and reputable life”.
While the morals had loosened by the 70s, the economic regulations had got tighter. Everything was under government control. While inflation raged at 15%, state regulations capped bank interest at 5%, guaranteeing savers a 10% annual loss in purchasing power.
As was the answer in those days – if it was a problem - the Government would make you do it. Advocates claim this could have transformed us into a major economic force. But building up the fund would have come at the cost of immediate investment, innovation and domestic spending in the economy.
Money in the fund wasn’t managed by independent, private-sector fund managers. The decisions would inevitably have been driven by political requirements, rather than through hard financial analysis.
This massive state fund planned to buy up shares in local companies, fund local government debt and bankroll infrastructure. Tellingly, the chair of the board was a politician. This approach would have handed unprecedented economic leverage to the State.
Even if the public servants could have resisted political interference, New Zealand was locked behind a fixed exchange rate.
Those who advocate for the 1974 scheme ignore that investing overseas was nearly impossible. We wouldn’t have had the hard currency to buy overseas assets. The Reserve Bank decided if you could be allowed foreign currency, even money for an overseas holiday was strictly controlled, as were imports.
There was no unified 'New Zealand Stock Exchange' but a fragmented, regionally-based system where brokers physically gathered on the floor, with the prices marked up on chalkboard. Kiwis who track the price of their international shares instantaneously on their phones today won’t believe you looked at a printed newspaper to find out what had happened yesterday.
In a typical balanced KiwiSaver fund, the portion invested specifically in the New Zealand sharemarket usually sits between 5% and 15% of your total investment. Back then sending cash into international markets would have been condemned as economic treason.
But that was the world the Superannuation Corporation was supposed to succeed in. Pretty quickly, the money would have seriously distorted the economy. The pots of cash would have been squandered on every mad idea taken to Wellington, that could fill in the paperwork.
The politicians would have found plenty of opportunities to use the cash to deal with problems. There were numerous potential investments from propping up inefficient car assembly plants to funding plastics factories on the West Coast. Come a few years later the “Think Big” programme would have been funded at low rates of return.
The walk-sock wearing conservative clerks at the Corporation in Wellington wouldn’t have looked at exotic things. They would have preferred real New Zealand apple orchards to a small computer start-up with the same name in California.
The ultimate vulnerability would have hit in 1987 when the global sharemarket crashed. While the US market fell 22% in a single day, the fragile New Zealand market eventually collapsed by a staggering 60% in a few weeks. The impact could have wiped out a generation of pension savings in one hit.
Speculation about the past is ultimately a debate about a reality that never happened.
The lesson we can learn from the 1975 super debate is to look at the underlying incentives. We can build national savings by ensuring flexible, high-quality options for Kiwi cash. Let them find the best places to invest and decide what works for their time of life. The future can be unfiltered.
What do you think? Email sundayletters@stuff.co.nz. Please include your full name and address.