When it comes to savings, does nanny state really know best?
Sunday, 5 July 2026
Vernon Small is a former Labour Government advisor and journalist.
OPINION: Kittens, cosy knits and compulsory KiwiSaver.
It seems boosting our national private savings scheme has joined the list of warm fuzzy things that it‘s sacrilege to criticise.
National’s road-to-the-election conversion to the scheme - with a move to compulsion, a big boost to the contribution rate taking it to 12% and a $1500 newborns’ bassinette bonus - has met with almost universal applause.
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Even from a party that has long championed the belief that taxpayers, not governments, are best placed to decide what to do with their own money.
Prime Minister Christopher Luxon and his team must be laughing all the way to the place where you bank swing votes. Well done Beehive spinners.
Even the cost – some $1.15b over four years, and put higher by the PSA when extra contribution costs to the state are included – has not sparked the same “show us the money, higher taxes and debt” frenzy as much cheaper policy promises from the Opposition.
Now, before we get into the policy mudwrestling, there is no doubt KiwiSaver has been a force for good. It has given millions of Kiwis the chance of a nest egg to supplement the universal superannuation payment – as well as a small insurance policy against future erosion of the state pension.
Some 3.4m have joined the scheme and there is currently about $123b under management, with about $12b in contributions added each year.
But the average balance is low – about $37,000 – and at June 2025, only two-thirds of those in the scheme were making contributions. Some 200,000 were opting to pay one of the top two rates of 8% or 10%.
Luxon’s predecessor as National leader, Simon Bridges, has argued the 12% rate is too high, and will make it tough for many who are struggling to make ends meet now, let alone find up to an eighth of their income to set aside for the future.
Yet voices raised in opposition have been few. It feels like questioning the wisdom of the policy, in the face of overwhelming public approval, is akin to swearing in church.
But what the hey.
Let’s start with the fact that in its current shape almost all the incentives to save into the scheme have been stripped away (ironically by the very party that is now championing it).
All that’s left of the original $1000 kickstarts, generous tax breaks on employer contributions, fee subsidies, a $5000-$10,000 home buyer’s grant and an annual $1040 dollar-for-dollar Government top up … is a miserly $260.72 a year from the state.
Moreover, allowing “total remuneration” packages - a loophole closed in 2008 and then reopened after a change of government - effectively means for many workers the employee and employer contributions are both deducted from the employee’s salary – an arrangement that the Retirement Commissioner has said is against the spirit of the scheme. A survey has found that about 25% of employers always use total remuneration packages and a further 20% use them to some extent.
In exchange for all that, those in the scheme agree to lock up their money until they are 65, barring proof of hardship or withdrawing it to pay a deposit on a first home. And even then, you must prove to someone else you should have your own money back.
Unless you are one of those people who needs saving from themselves, it’s hard to see why you wouldn’t just put your spare cash into the mortgage or into a non-KiwiSaver savings vehicle that is under your own control.
But back to the current debate around National’s proposed changes.
In last year’s Budget, in what can be seen as an amuse bouche to National’s election policy, the Government announced an increase in the minimum contribution rate, from 3% to 3.5% this year and to 4% in 2028.
Treasury assumed 80% of employers would offset their higher contributions “via lower-than-otherwise wage increases” so any benefit to workers from a higher contribution rate was expected to be severely curtailed.
What of the nationalistic argument, that lifting the contribution rate boosts the economy, deepens capital markets and builds a pool of investment capital?
Treasury assumed 80% of the increased contribution by employees will come at the expense of other forms of savings, such as lower mortgage payments or smaller investments elsewhere. So, household mortgage debt will be higher than if there had been no change, and household spending will be crimped.
Fast forward to National’s June announcement of a lift to 12% contributions, split between employees and employers.
Of course as a party policy it was not subject to the same analysis from Treasury that was applied to the Government’s 2025 changes. But it is hard to see why things should be materially different in terms of the impact on savings, mortgage repayments, squeezed household spending and pressure to offset increased costs to employers through lower wage increases.
And bear in mind the Government contribution increases announced in last year’s Budget were relatively slow-paced; 0.5% this year and another 0.5% in two years’ time. National’s policy would see a rapid-fire increase of 0.5% each year from 2028 to 2032.
It’s not for nothing they say that political parties campaign in poetry but govern in prose.
It would be fascinating to know what impact on the economy and household debt Treasury would expect from such a large amount of short- and medium-term spending being diverted into savings.
Back in 1997 a referendum on a compulsory retirement savings scheme devised by one of the country’s leading politicians of the day – a Mr Winston Peters – was defeated by a whopping 91.8% to 8.2%.
So given how few incentives remain in the KiwiSaver scheme, and how individualistic Kiwis are supposed to object to being told what to do by “nanny state” (mandates anyone?) it is hard to see why we have collectively become so supportive of a compulsory savings with very tight “hardship” opt-out criteria.
It ought to be a no-brainer, but it seems our reverence for prudent saving – like kitten videos - tugs at the heart more than the head.
What do you think? Email sundayletters@stuff.co.nz. Please include your full name and address.