Why KiwiSaver is nowhere near a match for Australia’s super scheme

Sunday, 30 November 2025

ANALYSIS: When Christopher Luxon announced that the National Party would be boosting KiwiSaver contributions through to 2032, it seemed like a case of ‘about time’.

Luxon, National and this writer all highlighted the point that as far as contribution rates go, they would be in line with Australia.

But the Australian aspect of it was fundamentally oversold.

The Australian retirement system is very different to New Zealand’s. Here is how.

The proposal

National will be taking a proposal into the election to boost KiwiSaver contributions to 6% each for employers and employees.

In May the Government announced the default KiwiSaver contribution rate would rise from 3% to 4% by April 2028.

This promised policy would build on that. For employee contributions, the amount is measured before tax but deducted after tax. For employer contributions it is spot tax contributions.

This has set off a wave of debate that has been brewing for some time.

The Australian Super System

The modern Australian superannuation system was launched in 1992, with the “superannuation guarantee”. Thirty-three years later it holds over $A4 trillion in superannuation accounts for Australia.

Its architect was Australian Labor Treasurer and and then Prime Minister Paul Keating, who wanted Australians of humble means to be able to have their money professionally managed - something formerly the preserve of the wealthy - and to be able to retire in comfort.

There are a number of core features of the Australian system that differ significantly from New Zealand.

The first is compulsion. Every wage, salary earner and small businessperson in Australia must be paid superannuation. It started out at 4% in 1993 and gradually rose to 12%.

In order to get the system off the ground, Keating, along with then Australian Council of Trade Unions boss Bill Kelty convinced the unions to take a real pay cut in order to put the money into a super scheme. Keating’s plan that it would eventually get up to 15% now seems unlikely.

The trade-off was that the super system would also form a part of the industrial relations system. So Australia has a bunch of “Industry Super” funds that employees are defaulted into when they take a job that provide director jobs for union and employer association types (as well as a revenue stream for unions). They are not-for-profit funds - i.e. they make money for members but no profit for the fund.

There is also a retail funds sector provided by banks and others as per New Zealand - these generate returns for members but also seek to make a profit.

Contributions are paid by employers into an employee’s nominated super account. When getting an employment contract (unless perhaps you are a CEO or at the margin) the salary or wage will read an amount paid in wages, plus 12% in super. This differs from New Zealand.

Part of the political economy that has made this so popular is that “the employer” pays for super. Of course that also falls on the NZ employer, but the Australian system enjoys generous tax concessions to make it more attractive. Super contributions are only taxed at 15% - which for employers means that 12% of any wage or salary is taxed at a lower rate - and annual returns within the fund are also only taxed at 15%.

There are also life and health insurance options folded into the system so that they are taxed less and there are tax advantages of getting such insurance at a young age.

In essence, there are many tax benefits from saving to take the load off the state in retirement and through insurance.

The combined effect of the lower tax rate on contributions and within the fund means the compounding effect is greater than that of KiwiSaver - where the tax rate for returns (the Prescribed Investor Rate) is almost double for most people, at 28%.

In addition to the mandatory 12% people can put more money into super up to a set limit annually to take advantage of the 15% tax rate.

The other key part of the Australian system is a means-tested age pension.

The effect of this has been that while the cost of NZ Super keeps spiralling, the cost of the Australian age pension is starting to fall. Instead of spending money on a big super scheme, the Australians have spent that money on tax breaks for super.

The political economy of it all

The Australian super system has several key planks that make it more comprehensive than KiwiSaver, as well as more attractive to employees and employers.

The first is the aforementioned - that “employers pay” for super, making it feel, to everyone, that they are getting an extra benefit.

Of course KiwiSaver also falls on NZ employers, but because it is voluntary and split in an employer/employee situation - i.e. who transfers money to the super account - it is less clear.

The other issue - and this will be exacerbated if National’s policy goes ahead unchanged - is people who don’t have KiwiSaver because they need the money instead of saving it, they effectively get a 6% pay cut because the employer does not need to meet contributions either.

Under the current system, the higher the rate of contribution, the more regressive it is for poorer or low information employees who might miss out on savings.

In New Zealand, there has always been some queasiness around both compulsion and tax incentives for retirement savings.

National has progressively unwound most free money since KiwiSaver was introduced, while Labour has not pushed on making the system compulsory despite having opportunities to do so.

The institutions of the New Zealand state and various ministries are also generally suspicious of tax breaks as a matter of principle.

The other big difference in New Zealand is NZ Super. No Government is going to promise to means test it any time soon.

New Zealand’s mixed system is neither fish nor fowl. It has a universal pension that keep poverty mostly at bay but is not particularly high, and it doesn’t have a great savings scheme to augment that or to try to relieve pressure on it.

It is notable that NZ First has also launched a policy for compulsory super with the proceeds to be used on some sort of future fund. The fact that National will campaign on higher rates after already lifting them at the last Budget suggests that it has been popular.

Labour has been making similar noises - and we expect more by the election.

The broader picture

So that is what it all means for individuals. But there has long been a broader economic story about the value of having a big, domestically-based pool of savings and fund management industry to invest those savings.

New Zealand and Australia are different economies, not least in scale. But of the $4 trillion of Australian retirement savings, about half is invested in Australia.

About one in four dollars is held in Australian shares. And these numbers used to be higher. As the industry has grown in size and sophistication it is searching more and more for offshore opportunities, private equity, and private credit.

For New Zealand’s historically thin capital markets, the idea of a much enlarged and growing pool of domestic savings to help drive domestic growth and investment is viewed very favourably

The other aspect of this is that global super funds are always hungry for infrastructure assets - long lived assets with regulated, predictable returns that can sit in a fund and be pretty well banked upon to balance out any ups and downs in other more liquid assets. Lots of Australian super funds hold shares in New Zealand companies - although many are listed on the ASX not the NZX.

In NSW, for instance, a consortium of super funds bought AUSGRID - the NSW equivalent of Transpower which runs New Zealand poles and wires and electricity infrastructure.

That arguably gave far more Australians a genuine stake in those assets than state ownership ever did. Australian Super - the biggest super fund in Australia - holds part of New Zealand infrastructure company Infratil and even tried to buy it in 2020.

The Australian Industry Funds (not-for-profit funds that are governed by industry association and unions) have an investment arm called IFM Investors which holds stakes in airports, ports, data centres, telecoms and toll roads among others.

This is the macroeconomic part of the story that many wish KiwiSaver could fulfil but which it will not; not at its current rate of growth - and it will fall even further behind the Australian Super scheme.

Into the election

While National’s announcement leaned in to the Australian level of contribution rates, it still does not wish to lean into any of the things that have really turned the Australian system into what it is.

Its key planks of employer contributions only, compulsion, favourable tax treatment and a means-tested pension have driven it into the juggernaut that it is.

It has helped to spur economic growth in Australia and has meant that profitable Australian companies have meant shared prosperity for all - thought the growth in retirement savings balances. It has been accompanied by much higher levels of literacy in the super investments.

This on its own has tilted Australia’s political economy in a direction one would assume National would wish to go in.

One of the first hurdles any government needs to overcome when thinking about new regulation and taxes is whether the affected industry will mount a “this will hurt your super” campaign.

There is a very long way to go before New Zealand has an Australian super system - but the politics could look quite different after next year’s election.

What do you think? Email sundayletters@stuff.co.nz. Please include your full name and address.