New Zealand’s KiwiSaver system has grown to $145 billion, yet major structural issues remain. In our recent discussion with Dean Anderson, CEO of Kernel, we unpack why KiwiSaver still isn’t delivering the outcomes it could and what needs to change to fix it.
$145 Billion KiwiSaver, Uneven Outcomes
KiwiSaver has become one of the largest pools of wealth in New Zealand, and for many people it will be their second biggest asset after their home. However, despite its scale, there are clear signs that the system isn’t working as effectively as it could.
One of the most significant challenges is participation. Around one million of New Zealand’s 3.3 million KiwiSaver members are not contributing at all.
This includes many contractors, business owners, and self-employed individuals who lack the same incentives to contribute compared to salaried employees.
Even among contributors, balances remain relatively modest. Current averages show:
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Early 30s: approximately $24,000
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Early 40s: approximately $40,000
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Early 50s: approximately $59,000
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Retirement age: approximately $70,000
These figures highlight a critical reality – KiwiSaver balances alone may not be enough to fund the retirement lifestyle many people expect.
KiwiSaver Incentives Aren’t Working
A key issue raised in the episode is whether current KiwiSaver incentives are delivering meaningful behavioural change.
The government’s member tax credit – previously costing around $1 billion per year was intended to encourage savings. However, there is little evidence that it significantly changes behaviour, particularly for those already employed and contributing.
Instead, Dean suggests redirecting those funds towards younger New Zealanders. His proposal is to contribute approximately $260 per year into KiwiSaver accounts for children aged 0 to 16. This would:
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Start the savings habit earlier
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Improve long-term financial literacy
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Increase engagement with investing
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Help address inequality in retirement outcomes
The impact of starting early could be substantial. Regular contributions during childhood could compound into meaningful retirement balances, even with no further contributions later in life.
Youth Are Disengaging From KiwiSaver
One of the most concerning trends is the sharp drop in youth engagement with KiwiSaver.
Since the removal of early incentives such as the $1,000 kick-start payment, the number of under-18 KiwiSaver members has halved over the past decade.
This decline matters because KiwiSaver’s strength lies in long-term compounding. The earlier contributions begin, the more powerful the long-term effect becomes.
Without early engagement, future generations risk entering the workforce without meaningful retirement savings momentum.
KiwiSaver Fails the Self-Employed
New Zealand’s economy relies heavily on contractors and small business owners, yet KiwiSaver provides limited incentives for this group.
Many business owners assume their business will fund their retirement. However, this can create risk. When market conditions change, businesses may not be worth as much as expected, leaving owners without sufficient retirement savings.
One potential solution discussed is introducing tax-exempt KiwiSaver contributions up to a certain threshold. This could encourage voluntary contributions while maintaining flexibility.
The goal is to create motivation rather than forcing compulsory participation.
KiwiSaver and Super Need Resetting
Another structural issue is how KiwiSaver and NZ Super currently interact.
At present, both KiwiSaver access and superannuation eligibility are tied to age 65. A proposed alternative is to decouple them by:
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Allowing KiwiSaver access earlier (for example, age 60)
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Increasing the superannuation age slightly (for example, age 67)
This would give individuals more control over their retirement timing, while maintaining superannuation as a baseline safety net rather than the primary retirement income source.
The shift would reinforce KiwiSaver’s role as the core driver of retirement outcomes.
KiwiSaver Must Focus on Retirement Outcomes
As KiwiSaver balances grow, there is increasing discussion about how those funds should be invested.
Dean Anderson emphasises that KiwiSaver exists to serve individual investors first. Since many Kiwis already have exposure to New Zealand through their jobs and property, concentrating KiwiSaver investments domestically could increase risk.
Diversification, including offshore investment, can help protect retirement savings from country-specific economic shocks.
The priority should remain maximising long-term retirement outcomes for individuals.
Key takeaways
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KiwiSaver has grown to $145 billion but participation and engagement remain uneven
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One million KiwiSaver members are not contributing
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Average balances at retirement are around $70,000
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Youth participation has halved over the past decade
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Early contributions can dramatically improve retirement outcomes
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Self-employed Kiwis lack sufficient incentives to contribute
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Decoupling KiwiSaver access from superannuation could improve flexibility
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KiwiSaver should focus on individual retirement outcomes and diversification
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Policy changes should prioritise long-term national wealth, not short-term incentives
Next steps
If you want to understand how your KiwiSaver fits into your broader financial plan and retirement strategy, Lighthouse Financial can help you build a structure aligned with your long-term goals.
Learn more about Kernel Wealth here
If you’d like to watch more, check out this other episode below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
