A review of international experience

MTC payment ($)
18–24 years 
25–34 years 
35–44 years 
45–54 years 
55+ years 
% of members
entitled to max. MTC
< 100
100–
200
201–
300
301–
400
401–
500
501–
600
601–
700
701–
800
801–
900
901–
1,000
1,001–
1,042
1,043
SOURCE: Inland Revenue 2011.
NOTE: Figure includes all members as of June 30, 2011, who had submitted a member tax credit (MTC) claim and were 
eligible for the maximum MTC of $NZ 1,043 in 2011.
TABLE 5.5  KiwiSavers receiving the maximum tax credit, 2008–10 
Member tax credit payment
2008
2009
2010
Number of 
members
% of 
total
Number of 
members
% of 
total
Number of 
members
% of 
total
Maximum payment
83,146
14 
359,753
46 
420,525
45 
Less than maximum payment
505,691
86 
414,270
54 
511,529
55 
Total
588,837
100 774,023
100 932,054
100 
SOURCE: Inland Revenue 2011.
NOTE: Figures include all individuals who received member tax credit payments for contributions made in 2009/10, includ-
ing payments to complying funds (non-KiwiSaver retirement schemes that have all relevant features of KiwiSaver schemes 
and were in existence before June 1, 2007). 

5.  NEW ZEALAND’S EXPERIENCE WITH THE KIWISAVER SCHEME 
119
TABLE 5.6  Method by which members entered the KiwiSavers scheme, 2008–11
Scheme entry method
2008
2009
2010
2011
Number of 
members
% of 
total
Number of 
members
% of 
total
Number of 
members
% of 
total
Number of 
members
% of 
total
Default allocated
268,868
38
369,577
34
419,250
29
458,013
26
Employer nominated
94,895
13
129,963
12
150,157
10
165,500
10
Active choice
352,483
49
600,709
55
890,356
61
1,132,193
64
Unspecifi ed at year end
391
 1
291
 1
179
< 1
226
< 1
Total
716,637
100
1,100,540
100
1,459,942
100
1,755,932
100
SOURCE: Inland Revenue 2011.
NOTE: Figures show members as of June 30. Totals may not sum to 100 percent because of rounding. Default allocated 
refers to members who join KiwiSaver through the automatic enrollment process. Employer nominated refers to members 
who join through active choice into a KiwiSaver scheme sponsored by their employer.
TABLE 5.7  Number and type of KiwiSaver scheme transfers, 2008–11
Transfer 
type 
2008 2009 2010 2011 
Standard 17,757 
50,457 
113,555 
112,234 
Holding period 
53,355 
12,262 
9,753 
9,533 
Total transfers 
71,112 
62,719 
123,308 
121,767 
SOURCE: Inland Revenue 2011.
NOTE: Figures are for the period July 1, 2007, to June 30, 2011. Standard transfers are transfers across schemes. Transfers 
as a result of mergers of scheme providers were excluded.
FIGURE 5.11  Number of standard KiwiSaver scheme transfers, 2007–11
0
2
4
6
8
10
12
14
16
July Aug. Sept. Oct. Nov. Dec. Jan. Feb. March 
April May  June 
thousands
2007–08 
2008–09 
2009–10 
2010–11 
SOURCE: Inland Revenue 2011.
NOTE: Figures are for the period June 1, 2007 to June 30, 2011. Standard transfers are transfers across schemes. Transfers 
as a result of mergers of scheme providers were excluded.

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MATCHING CONTRIBUTIONS FOR PENSIONS: A REVIEW OF INTERNATIONAL EXPERIENCE
advisers to persuade people to switch to their scheme; banks seem likely to be able to pro-
vide material to their wider customer base more effectively.
Assets
KiwiSaver assets under management reached $NZ 9,187 billion by June 30, 2011. 
Table 5.8, compiled by the Financial Markets Authority from provider annual returns, 
shows the growth in the number of schemes and assets since 2008.
TABLE 5.8  KiwiSaver scheme numbers and total assets, 2008–11 
Scheme size (NZ $)
Number of schemes
Total assets (NZ $, millions)
2008
2009
2010
2011
2008
2009
2010
2011
< 1 million
17 
14 
10 
10 
5 
9 
2 
2 
1 million to < 2.5 million
5 
6 
8 
5 
9 
8 
14 
8 
2.5 million to < 10 million
9 
10 
5 
5 
45 
51 
27 
20 
10 million to < 25 million 
6 
6 
6 
7 
89 
87 
101 
122 
25 million to < 50 million 
3 
6 
4 
4 
130 
210 
132 
140 
50 million to < 100 million 
5 
3 
5 
2 
322 
221 
399 
110 
100 million to < 200 million
1 
4 
3 
7 
101 
659 
364 
1,049 
200 million and over 
0 
5 
11 
12 
0 
1,415 
4,812 
7,736 
Total 
46 54 52 52  701 2,660 5,851 9,187 
SOURCE: Inland Revenue 2011, based on data from the Financial Markets Authority.
NOTE: Figures include all KiwiSaver schemes that provided statistical returns as required under Section 125 of the 
KiwiSaver Act 2006 as of March 31 of each year.
Research into the KiwiSaver supply side has identified the increasing role KiwiSaver 
is playing in New Zealand’s managed funds sector (Ministry of Economic Development 
2010). Although still smaller than the other financial sectors (except life insurance), 
KiwiSaver is growing in importance (figure 5.12).
A secondary goal of KiwiSaver is to support local capital markets by providing an 
additional source of investment funds. Some information on the allocation among invest-
ment sectors is available from the annual KiwiSaver reports of the Financial Markets 
Authority (table 5.9).
Changes in asset allocation since 2007 can be derived from the quarterly Managed 
Funds Survey of the Reserve Bank of New Zealand. Figure 5.13 shows that overseas equity 
has been the dominant asset class, at about 30 percent. Initially, 21 percent of funds 
were held in local short-term (less than one year maturity) fixed-interest instruments, 
and another 18 percent was on deposit with other financial institutions. By 2011, just 
15 percent of funds were held in short-term fixed-interest instruments, and 10 percent 
were on deposit with other financial institutions. The main gain appears to have been in 

5.  NEW ZEALAND’S EXPERIENCE WITH THE KIWISAVER SCHEME 
121
foreign and longer-term New Zealand fixed-interest instruments, as investment in domes-
tic equities was about 10 percent of assets under management over the whole period. This 
distribution is broadly similar to the allocation of other retirement schemes and managed 
funds.
TABLE 5.9  Allocation of KiwiSaver assets, 2011
Fund type
Membership
Assets
Number
% of total
Amount ($NZ)
% of total
Default
405,679
17.4
2,250,076,280
24.5
Active default
111,526
4.8
547,147,918
6.0
Conservative
345,816
14.8
1,489,817,370
16.2
Balanced
351,949
15.1 2,056,698,172
22.4 
Growth
470,383
20.2 2,053,244,933
22.4 
Single-sector funds
Cash
566,035
24.3 432,834,955
4.7 
Shares 23,999
1.0 
102,261,060
1.1 
Fixed interest
3,060
0.1 
7,551,086
0.1 
Property
2,108
0.1 9,197,653
0.1 
Socially responsible
7,570
0.3 
19,538,934
0.2 
Other
45,166
1.9 218,268,626
2.4 
Total
2,333,291
100.0 9,186,636,988
100.0
SOURCE: Financial Markets Authority 2011, based on returns for year ending March 31, 2011.
FIGURE 5.12  Managed funds assets in New Zealand, by product category, 2007–11
September
2009
December
2008
June
2007
0 
10
20
30
40
50
60
70
assets ($NZ, billions) 
life insurance 
 KiwiSaver 
other superannuation 
unit trusts & group investment funds 
other funds managed 
June
2010
March
2008
March
2011
SOURCE: Inland Revenue 2011, based on data from Reserve Bank of New Zealand, Managed Funds Survey.

122 
MATCHING CONTRIBUTIONS FOR PENSIONS: A REVIEW OF INTERNATIONAL EXPERIENCE
Indeed, the investment patterns for KiwiSaver appear to be similar to the managed 
funds sector as a whole, with one exception. Figure 5.14 compares the percentages of assets 
in overseas assets (equities and fixed-interest instruments) for KiwiSaver, other retirement 
schemes, and all managed funds covered by the survey. It reveals that KiwiSaver holdings 
in total overseas assets have increased and are comparable with managed funds as a whole. 
The share remains much smaller than in other retirement funds, however. One might still 
question whether KiwiSaver’s secondary objective of supporting local capital markets is 
fully being met.
Contribution Holidays
The contribution holiday feature was designed to ensure that potential members were not 
put off from joining due to a concern that they would have to keep contributing during 
times of financial or other stress. Two kinds of contribution holiday are possible. The first 
is a financial hardship holiday, which is subject to consent from the scheme trustees. The 
second, open to any member who has made at least one year of regular contributions, 
allows members to cease contributions for a specified time up to five years. As a new 
holiday can be taken at the end of an existing one, people can drop out for as long as they 
want (although they do have to keep opting out in this fashion). 
The 2011 evaluation report provides the number of members on each type of holi-
day as of June 30, 2008–11. No figures are provided on the number of members making 
regular contributions and hence eligible for a contribution holiday. A reasonable proxy 
is people who enrolled in KiwiSaver either as what was termed in table 5.6 “default allo-
cated” (that is, through the automatic enrollment process) or “employer nominated” (that 
is, through active choice into a KiwiSaver scheme sponsored by their employer). People 
FIGURE 5.13  Distribution of KiwiSaver funds by asset class, 2008–12
% of assets
0
10
20
30
40
March 2008 
March 2009 
March 2010 
March 2011 
March 2012 
NZ short-term fixed interest 
Other NZ fixed interest 
NZ deposits with others 
NZ equities 
NZ property 
overseas fixed interest 
overseas equity 
overseas other 
SOURCE: Author, based on Reserve Bank of New Zealand, Managed Funds Survey 2012. 
NOTE: Data on overseas assets for March 2008 and 2009 do not distinguish among equities, fi xed-interest, and other 
assets. The assumption of a 30 percent holding in overseas equities for the two years was made based on subsequent 
data. NZ = New Zealand.

5.  NEW ZEALAND’S EXPERIENCE WITH THE KIWISAVER SCHEME 
123
who enter through active choice include all members under age 18, as well as others 
who joined KiwiSaver through a route other than employer arrangement; this is likely to 
include some members who are contributing by salary deduction through the PAYE sys-
tem. The percentages in table 5.10 thus need to be interpreted with some caution.
TABLE 5.10  KiwiSavers on contribution holiday, 2008–11
Holiday type
2008
2009
2010
2011
Number
% of net 
enrolled 
members
Number
% of net 
enrolled 
members
Number
% of net 
enrolled 
members
Number
% of net 
enrolled 
members
Financial 
hardship 
3,280
0.9 813
0.2 494
0.1 383
0.1 
Optional 
n.a.
n.a.
25,122
5.0 45,069
7.9 63,324
10.1 
Total 
3,280
0.9 25,935
5.2 45,563
8.0 63,707
10.2 
SOURCE: Inland Revenue 2011. 
NOTE: Figures include all members who were on contribution holidays as of June 30. Percentages exclude members 
enrolled through active choice (see table 5.6). n.a. = not applicable. 
Only a very small proportion of members (about 0.1 percent) have been granted a 
contribution holiday on financial hardship grounds. In contrast, 10.1 percent of members 
took optional contribution holidays in 2011, a figure that has been rising over time. The 
KiwiSaver Evaluation Group has been carrying out an in-depth investigation into opt-out 
and contribution holiday behavior. Once released, its report will be posted on its website 
(http://www.ird.govt.nz/aboutir/reports/research/report-ks/). 
FIGURE 5.14  Percentage of assets invested in overseas assets by KiwiSaver, other retirement 
funds, and all managed funds, 2008–12
% of assets
March 2008 
25
30
35
40
45
50
55
60
65
70
March 2009 
March 2010 
March 2011 
March 2012 
KiwiSaver 
other retirement funds 
all managed funds 
SOURCE: Author, based on Reserve Bank of New Zealand, Managed Funds Survey 2012.

124 
MATCHING CONTRIBUTIONS FOR PENSIONS: A REVIEW OF INTERNATIONAL EXPERIENCE
Although the proportion of members electing to take a contribution holiday is rela-
tively low (but rising), the duration of the holiday has increased (figure 5.15). This trend 
may be indicative of the importance of this flexibility to these members. Alternatively, the 
same pattern of inertia once a choice is made may be at play.
FIGURE 5.15  Duration of optional KiwiSaver contribution holidays, 2008–11
0
20
40
60
80
100
December 31,
2008
June 30,
2009
June 30,
2010
June 30,
2011
% of members
on holiday
long holiday (≥ 5 years) 
medium holiday (1–5 years) 
short holiday (≤ 1 year)
SOURCE: Inland Revenue 2011.
Provision for Housing
Recognizing the potential importance of homeownership for support in retirement, the 
designers of the KiwiSaver scheme included support for first-time home buyers. These 
provisions were not triggered until three years after KiwiSaver began. Contributions other 
than the government subsidy can be withdrawn for a first home purchase, and a grant of 
$NZ 1,000 per year of contribution, to a maximum of five years, can be obtained for this 
purpose.
The 2011 evaluation report records that there were 1,274 withdrawals, for a total 
value of $NZ 12.3 million, between June 1, 2010, and March 31, 2011. The average 
value of a withdrawal was $NZ 9,640. Over the same period, 619 subsidies of $NZ 3,000 
each (the maximum level available after three years of membership) were granted. Unof-
ficially, it has been suggested that in the last quarter of 2010/11 (April 1–June 30), a much 
higher level of activity occurred, similar in magnitude to the first three quarters combined. 
In 2011, Housing New Zealand Corporation conducted an evaluation of some 
KiwiSaver providers (Laing, Nunns, and Ou 2011).
8
 All 5 default KiwiSaver providers 
whose members applied for housing assistance and 8 of the 25 other providers whose 
members did so responded to the survey, which revealed that the number of members 
who withdrew funds to purchase a first home or were approved for a subsidy was higher 
than forecast. Other evaluation findings included the following:
 
• Nearly 80 percent of KiwiSaver members who withdrew funds were with default 
providers. 
 
• Most of the approved subsidy applicants were young.

5.  NEW ZEALAND’S EXPERIENCE WITH THE KIWISAVER SCHEME 
125
 
• Many members experienced problems coordinating subsidy and withdrawal 
applications.
 
• Lawyers lacked knowledge about the homeownership package.
 
• To withdraw funds, a KiwiSaver member has to provide an unconditional sale 
and purchase agreement. Obtaining the agreement is difficult without knowing 
the availability of the subsidy or the amount of the withdrawal.
Government Cost
The amount of support from the government is diminishing as a proportion of the total, 
although it remains substantial, at a little under 40 percent (figure 5.16). This decrease 
reflects a steady build-up from members’ own contributions and increasing investment 
returns. Members who contribute only the minimum needed to obtain the maximum 
member tax credit will keep government support higher than it would otherwise be as a 
proportion of the total.
FIGURE 5.16  Government KiwiSaver contributions as a percentage of total funds sent to providers, 
2007–11 
0
20
40
60
80
100
July 1, 2007–
June 30, 2008
% of funds to providers
member and 
employer
contributions 
government
contributions 
July 1, 20010–
June 30, 2011
July 1, 2009–
June 30, 2010
July 1, 2008–
June 30, 2009
SOURCE: Inland Revenue 2011.
NOTE: Figures show all government contributions to members passed from Inland Revenue to providers between October 
2007 and June 2011 (cash basis). 
The costs of the KiwiSaver scheme to the government are set out in a little more 
detail in table 5.11. The impact of discontinuing the employer tax credit is apparent. 
These figures do not include the cost of the waiver of the employer retirement contribu-
tion, which was removed April 1, 2012.
The cost of KiwiSaver subsidies is of particular concern because of the government’s 
commitment to return to fiscal surplus by 2016. A proposal to effect a one-time auto-
matic enrollment of existing non-KiwiSaver member employees that was included in the 
2011 budget for implementation in 2012 has been deferred because of the additional cost 
involved.

126 
MATCHING CONTRIBUTIONS FOR PENSIONS: A REVIEW OF INTERNATIONAL EXPERIENCE
Conclusions
OBSERVATIONS ON EARLY EXPERIENCE WITH KIWISAVER
After nearly five years of experience and several rounds of evaluations, a number of obser-
vations on the impact and dynamics of the KiwiSaver program may now be made. In 
general, the program has proven very effective in achieving relatively high levels of par-
ticipation in supplementary retirement saving across a broad spectrum of the population. 
In a relatively short period, participation has been extended to nearly half the population 
under age 65 and an even larger proportion of the labor force. As a result, New Zealand 
now has one of the highest rates of coverage for supplementary retirement saving in the 
world. 
The high level of coverage likely reflects the combination of automatic enrollment 
and substantial matching incentives. This level of participation is particularly notable as it 
has occurred in a setting with a long tradition of providing substantial retirement income 
through a noncontributory public pension system, with effectively no qualifying require-
ments beyond age and residency. Equally notable is the fact that, in contrast to most other 
similar settings, New Zealand provides direct subsidies but no tax concessions for retire-
ment savings. The very large share of membership among people age 24–35—who typi-
cally have a low probability of contributing to retirement saving schemes—demonstrates 
the impact of automatic enrollment.
A strong indication of the power of matching incentives is the high proportion 
(24 percent) of members who indicate no sources of income. These people presum-
ably enrolled to take advantage of the generous kick-start match and the opportunity to 
contribute the minimum amount to obtain the full member tax credit. The number of 
members under age 18—a group that typically has a very low propensity to save for retire-
ment—provides similar evidence of the strength of the matching incentives, although it 
may be that only better-off families are in a position to make the initial contribution.
Lessons from the emerging field of behavioral economics guided the development 
of KiwiSaver. The evidence confirms the significance of a number of the issues identified 
in the literature (for a discussion of behavioral economics, see chapter 15). Participants’ 
behavior is consistent with the power of defaults and inertia. A very large proportion of 
members stick with the default rates for contributions and allow themselves to be enrolled 
TABLE 5.11  Cost of KiwiSaver to the government, 2008–11 
$NZ, MILLIONS
Cost 2008
2009
2010
2011
2008–11
Payments to members 
572
842
970
998
3,382
Employer tax credit 
38
206
n.a.
n.a.
244
Total 610
1,048
970
998
3,626
SOURCE: Inland Revenue 2011. 
NOTE: Figures show all government contributions to members passed from Inland Revenue to providers between October 
2007 and June 2011 (cash basis). n.a. = not applicable.

5.  NEW ZEALAND’S EXPERIENCE WITH THE KIWISAVER SCHEME 
127
in default provider schemes. The proportion of people who opt out after automatic enroll-
ment is relatively low, as is the proportion taking contribution holidays, despite the fact 
that many (albeit not a majority of ) members were automatically enrolled. The fact that 
many members continued to make contributions at the default rate even after that rate 
was reduced confirms the stickiness of default parameters in other settings.
Equally instructive is the evidence on the influence of matching thresholds and other 
parameters on behavior. The remarkable degree to which contributions cluster around 
the maximum points of matching and tax credits reveals the degree to which members 
respond to these incentives and their role as a signaling mechanism. It also has implica-
tions for the efficiency of the system in increasing saving.
The ramping up of membership of people under age 18 provides evidence of grow-
ing awareness of the new system and the potential value of the generous initial kick-start 
contribution. The increasing exercise of choice, incidence of transfers among providers, 
and entry of new providers suggests that a few years are needed before a system is accepted 
and both supply- and demand-side participation become widespread.
BROADER RETIREMENT INCOME POLICY ISSUES
The experience with KiwiSaver has raised some broader retirement policy issues.
Adequacy of New Zealanders’ Savings for Retirement
Throughout the 1990s and into the new century, coverage of workers in occupational 
retirement schemes continued to fall. There was also concern about the general adequacy 
of private saving levels in New Zealand.
In 2004, as the Savings Product Working Group was delivering its report recom-
mending government intervention in the retirement savings market, a Treasury Working 
Paper (Scobie, Gibson, and Le 2004) was published suggesting that there may not, in fact, 
be widespread undersaving for retirement. This finding was based on a life-cycle model 
that derives saving rates as the residual between income and expenditure as reported in the 
Statistics New Zealand Household Economic Survey. For nearly 40 percent of working-
age people, New Zealand Superannuation would provide income equal to or greater than 
the current level; for this group, saving for retirement would not be a preferred strategy.
Statistics New Zealand strongly recommended against deriving a residual for savings 
in the manner used in the working paper. A second paper (Bascand, Cope, and Ramsay 
2006) found that cross-checking with other data suggested that the Household Economic 
Survey may have underreported income by 4 percent and expenditure by 17 percent. 
Attempts to address adequacy using other data sources have not been fruitful, because of 
data problems.
Complementarity of KiwiSaver and New Zealand Superannuation
The role of the Retirement Commissioner (now the Commissioner for Financial Literacy 
and Retirement Income) has grown over the years. Since 2007, the commissioner has 
been tasked with reviewing retirement income policy. The 2007 review expressed some 
disquiet about the impact of KiwiSaver on the cornerstone (as the commissioner saw it) 
New Zealand Superannuation. A particular concern was the fact that KiwiSaver is much 

128 
MATCHING CONTRIBUTIONS FOR PENSIONS: A REVIEW OF INTERNATIONAL EXPERIENCE
more complex than the very simple public old-age provision. A response to this concern 
was provided by a paper in the New Zealand Journal of Social Policy (Rashbrooke 2009) 
that emphasized the complementarity of the two policies, particularly in relation to evi-
dence from OECD Pensions at a Glance that made clear that the income adequacy of New 
Zealand Superannuation fell short of replacement, because preretirement incomes had 
increased. The paper also suggested that the costs of KiwiSaver were modest compared 
with subsidies for retirement savings in other countries.
Additionality of KiwiSaver
As part of its ongoing research work, in 2010 the KiwiSaver Evaluation Group commis-
sioned a survey of 825 people (members and nonmembers), asking for their estimates 
of their expected income in retirement and the amount of income they would need to 
cover their basic needs or be comfortable. Analysis of these data was published in a Trea-
sury Working Paper (Law, Meehan, and Scobie 2011), and preliminary findings are dis-
cussed in the Evaluation Group report. Based on the responses, Law, Meehan, and Scobie 
estimated that 33 percent of the target population became members based on need and 
46 percent became members based on the desire to be comfortable in retirement. For 
every member in the target population, another 4–14 people from outside the target pop-
ulation are estimated to have joined.
The analysis also explored the impact of the scheme on national saving. It concluded 
that given the conditions and settings of the scheme in 2011, over the 10 years to 2021 
the net contribution of KiwiSaver to national saving would be marginal at best and may 
actually reduce national saving.
The Treasury paper notes that, as with any survey, there is a risk that some respon-
dents may have answered questions about what they would have done in the absence of 
the scheme in a way they believed showed them in a favorable light. Certainly the degree 
of subjectivity raises some questions about the usefulness of the detailed and comprehen-
sive analysis of responses.
The Evaluation Group report also noted the limitations of survey results, which 
provide a snapshot of respondents’ circumstances and expectations about the future at a 
particular point in time. The results do not provide a comprehensive basis for assessing 
changes in individual or household saving behavior over time.
Other Research Activities
Work is planned to evaluate the initial impact of KiwiSaver on individuals’ saving and net 
worth. This evaluation is intended to provide a comprehensive basis for assessing changes 
in individual or household saving behavior over time based on data from the New Zealand 
longitudinal survey, the Survey of Family Income and Employment. 
The Survey of Family Income and Employment was conducted by Statistics New 
Zealand from 2002 to 2010. The survey collected information on individual and house-
hold income, as well as the factors that influence changes in income, such as involve-
ment in the labor force and family composition, and detailed information on assets and 
liabilities. During the eight years in which the survey was administered, respondents were 
revisited annually in order to understand how their circumstances changed. Every second 

5.  NEW ZEALAND’S EXPERIENCE WITH THE KIWISAVER SCHEME 
129
year (or wave) of the survey, respondents were asked about their assets and liabilities. In 
the final year (Wave 8), the survey included specific questions about KiwiSaver.
In 2012, the KiwiSaver evaluation team linked KiwiSaver administrative data from 
Inland Revenue with survey data in order to gain greater insights into actual saving behav-
ior rather than rely on subjective responses. An evaluation of the types of individuals 
who opted out and took contribution holidays was released in June 2012.
9
 The 2011 
evaluation report also noted the intention of the Department of Building and Housing 
to conduct a follow-up of the initial Housing New Zealand Corporation survey on the 
homeownership package to assess the impact and effectiveness of the package against its 
agreed outcomes. The Ministry of Economic Development plans to update its work on 
the KiwiSaver supply-side evaluation.
An industry survey is also of interest. Matthews (2011) reports on a survey of 1,001 
New Zealanders age 18–65 conducted on behalf of the Financial Services Institute of Aus-
tralasia. This study finds that just over half of New Zealanders age 18–65 were KiwiSav-
ers and that more than half of these people had not been saving for retirement before 
enrolling. More than half of KiwiSavers joined because they recognized the importance of 
saving for retirement. Government incentives were also important, with about 90 percent 
describing the $NZ 1,000 kick-start and just under 90 percent describing the member tax 
credit as very important or important.
Along with not being able to afford to join, the survey also finds that a key reason 
why people had not joined KiwiSaver was that they already had sufficient savings and 
investments for retirement. Uncertainty about the structure of the scheme (as a result of a 
belief that changes were likely in the future) also discouraged people from joining.
WHAT LIES AHEAD?
New Zealand’s public pension system underwent significant changes over the past 
35 years. Despite these changes, public pension spending fell by more than in any other 
OECD country, mainly as a result of the increase in the pension eligibility age.
The universal demogrant approach has considerable and complex challenges. Among 
other things, it has no inherent buffer mechanisms to absorb shocks, such as declines in 
employment or wage growth below inflation, let alone increases in longevity. And there is 
the ever-present pressure on health costs necessary to meet population expectations.
Although the universal benefit appears to be associated with very low poverty rates, 
significant numbers of pensioners in New Zealand are just above the poverty line. The 
average incomes of households headed by someone age 65 or over are low, and the vast 
majority of lower-income retired households (the bottom 50 percent) rely almost exclu-
sively on government benefits. Homeownership has fallen, and income inequality among 
people of working age has increased significantly.
KiwiSaver provides future governments with some flexibility to deal with these 
challenges. The evidence suggests that, critics notwithstanding, the scheme is develop-
ing in a positive manner. In addition to providing direct benefits, the very introduction 
of KiwiSaver has led to much greater public awareness of retirement saving and financial 
services. The Commission for Financial Literacy and Retirement Income has seized the 
opportunity provided by KiwiSaver to leverage its work on financial education.

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Some design issues remain. The availability of the member tax credit when not mak-
ing regular contributions from pay encourages gaming of the system, and the reduction in 
the credit from 1:1 to 1:2 reduces the reward to people for whom salary deduction repre-
sents some real sacrifice without explicitly addressing the gaming aspect. Standardization 
of reporting on fees and investment returns is long overdue (the new government initia-
tive in this area will be watched with interest).
The criticism that KiwiSaver perpetuates differences in income and wealth is unde-
niably true; poorer workers, particularly workers with young children, simply cannot 
afford to make the payments needed to obtain the member tax credit or employer contri-
butions. This consequence of the program is not in itself an argument against KiwiSaver, 
but it highlights the need for policy to take a holistic view of outcomes.
No government policy attention has yet been paid to the decumulation aspect of 
KiwiSaver caused by the fact that benefits will be paid as lump sums. Providers are start-
ing to consider how they might respond, with the likelihood of something like Australian 
draw-down facilities being made available.
10
 The extent to which some New Zealand–rel-
evant regulatory requirements will be needed remains to be seen.
Inevitably, given the politically charged nature of retirement income provision, more 
changes will be made. But one may cautiously conclude that KiwiSaver is here to stay and 
that it will make a valued and valuable contribution to retirement income provision in its 
widest sense.
Notes
1.  Retirement accounts are long-term fully funded savings that are accessible only upon reaching 
some mandated age. In New Zealand and Australia, these arrangements are generally referred 
to as superannuation schemes.
2.  For a good history of New Zealand Superannuation and its forerunners, see Preston (2008).
3.  As the result of coalition agreements under New Zealand’s system of proportional represen-
tation, the net-of-tax value floor is actually 66 percent rather than 65 percent, although no 
legislative change has been made.
4.  Currency values in this chapter are given in New Zealand dollars; $NZ 100 = US$82.
5.  These limits were imposed by constraints within the PAYE system adapted to collect 
contributions.
6.  Details of the agreements for the default providers can be obtained from the Financial Mar-
kets Authority website, http://www.fma.govt.nz/help-me-comply/kiwisaver/your-obligations/
default-providers/.
7.  All reports are available at http://www.ird.govt.nz/aboutir/reports/research/report-ks/.
8.  The Housing New Zealand Corporation has responsibility for tenancy arrangements and 
manages the stock of public housing. The Department of Building and Housing has respon-
sibility for policy work.
9.  This evaluation, “Opting-Out and Taking Contribution Holidays,” is available at http://www.
ird.govt.nz/aboutir/reports/research/report-ks/research-ks-opting-out-holiday-contributions.
html.
10.  In Australia, voluntary take-up of lifetime annuities is very low. The preferred approach is 
for retirement assets to remain under management and drawn down in regular monthly 

5.  NEW ZEALAND’S EXPERIENCE WITH THE KIWISAVER SCHEME 
131
payments. If these payments fall between certain minimums and maximums (which depend 
on life expectancy), some tax advantages remain. Participants can still withdraw lump sums, 
resetting the monthly payment levels. There is, of course, no further payment if funds are 
exhausted before death.
References
Bascand, G., J. Cope, and D. Ramsay. 2006. “Selected Issues in the Measurement of New Zea-
land’s Saving(s).” Paper presented at the Reserve Bank of New Zealand Workshop on Saving, 
Wellington, November 14. www.rbnz.govt.nz/research/workshops/14nov06/2895712.pdf.
Financial Markets Authority. 2011. Annual Report in Respect of the KiwiSaver Act 2006 for the Year 
Ending June 30, 2011. http://www.fma.govt.nz/media/368324/kiwisaver_report_for_the_
year_ended_30_june_2011.pdf.
Harris, P. 2004. “A Future for Work-Based Savings in New Zealand.” Government of New Zea-
land, Wellington. http://www.beehive.govt.nz/Documents/Files/WorkplaceSavings.pdf.
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nz/aboutir/reports/research/report-ks/.
Laing, Patricia, Heather Nunns, and Chris Ou. 2011. “KiwiSaver Home Ownership Package: Pro-
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Impact on Retirement Saving.” New Zealand Treasury Working Paper 11/04, Wellington. 
http://www.treasury.govt.nz/publications/research-policy/wp/2011/11-04/.
Matthews, Claire. 2011. “KiwiSaver and Retirement Savings: A Report Prepared for FINSIA 
and the IFA.” Massey University, Palmerston North. http://www.finsia.com/docs/ecm-files/
pol11_13_kiwisaver_web(2)8DFBF9E580A7.pdf?sfvrsn=2. 
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ton. http://www.parliament.nz/NR/rdonlyres/7A582DB3-63D0-4D42-9863-C0700B-
199FEC/88258/DBHOH_PAP_14297_36895.pdf.
New Zealand Treasury. 2009. Challenges and Choices: New Zealand’s Long-Term Fiscal Statement. 
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position/2009/ltfs-09.pdf.
OECD (Organisation for Economic Co-operation and Development). 2011a. OECD Factbook 
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—. 2011b. OECD Pensions at a Glance 2011. Paris: OECD.
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Rashbrooke, Geoff. 2009. “Simple, Effective and (Relatively) Inexpensive: New Zealand Retire-
ment Provision in the International Context.” New Zealand Journal of Social Policy 36. http://
www.msd.govt.nz/about-msd-and-our-work/publications-resources/journals-and-magazines/
social-policy-journal/spj36/36-nz-retirement-provision.html.
—. 2010. “Living within Our Means: A Framework for Deciding the Age of Eligibility for 
NZ Superannuation.” In Retirement Income Policy and Intergenerational Equity, ed. Judith 
Davey, Geoff Rashbrooke, and Robert Stephen. Wellington: Institute of Policy Studies. 

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Reserve Bank of New Zealand. 2012. “Managed Funds Survey.” Wellington. http://www.rbnz.
govt.nz/statistics/monfin/c15/download.html.
Scobie, Grant, John Gibson, and Trinh Le. 2004. “Saving for Retirement: New Evidence for New 
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govt.nz/publications/research-policy/wp/2004/04-12/.
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CHAPTER 6