Michael P. Cameron, Professor of Economics, University of Waikato
An ageing population not saving fast enough for its retirement has been called a “timebomb” and a looming crisis, with many New Zealanders facing the prospect of hard times when they stop earning.
So, NZ First leader Winston Peters was on the money at his party’s recent annual conference when he pitched a major KiwiSaver overhaul. Under the plan, membership would become compulsory and minimum contributions from both employees and employers would increase to 8% of income, rising to 10% later.
To soften the hit to pay packets and business costs, Peters suggested tax cuts for KiwiSaver members and employers. These proposals go well beyond the already budgeted increases to minimum KiwiSaver contributions from 3% to 3.5% in April 2026, and 4% in April 2028.
But while there are good arguments for boosting KiwiSaver, there is a better option: increasing government contributions to the New Zealand Superannuation Fund (or Super Fund) – already a very well performing fund by world standards.
A top performing fund
New Zealand saves for future pensions in two distinct ways: KiwiSaver, the voluntary retirement savings scheme predominantly funded through employee and employer contributions; and the Super Fund, a Crown investment vehicle set up to alleviate the future tax burden of the universal public pension.
The two have different purposes and distributional effects, and that matters when deciding where the next dollar of public support for retirement savings should go.
KiwiSaver is designed primarily to build household retirement balances (with early access for first home deposits). By design, contributions scale with wages. Higher earners contribute and accumulate more.
In contrast, the Super Fund is a sovereign wealth fund and part-funds superannuation payments. So, every additional dollar earned by the fund ultimately supports a benefit paid essentially equally to all retirees.
On investment grounds alone, there is a strong case for channelling extra public resources to the Super Fund. Kiwisaver funds earn investment returns. But those returns pale in comparison to the returns earned by the Super Fund.
Independent sovereign investor analysts Global SWF recognised the Super Fund as the world’s top performing sovereign wealth fund over both 10- and 20-year horizons. Over the 20 years to June 2024, the fund delivered a 10.03% return per year after costs. That compares favourably with the average Kiwisaver 10-year return (for the higher risk growth funds) of 8.3%.
Of course, past performance is not a guarantee. But if New Zealand wants the most funds available for future retirement, it seems the Super Fund might be a better bet than KiwiSaver.
A fairer pension
Because KiwiSaver contributions are a percentage of wages, and participation is tied to employment, increases in minimum rates (even when partly offset by tax cuts) tend to boost balances most for higher earners and those with uninterrupted careers.
This inequality is exacerbated by the number of Kiwisaver members who do not contribute to Kiwisaver at all in any given year, which was 30% of the membership in 2024-25.
By contrast, a dollar paid into the Super Fund sits on the Crown’s balance sheet and helps fund a universal pension that every qualifying retiree receives.
If we want to reduce inequality in retirement resources, then rather than providing tax cuts to increase Kiwisaver contributions, the government should put an equivalent amount of money into the Super Fund – without cutting taxes.
Of course, KiwiSaver does more than simply fund retirement. Allowing early withdrawals to fund first home purchases supports home ownership, which itself improves retirement wellbeing. Making contributions compulsory (and larger) could also improve long-run financial resilience for many households.
But those goals don’t appear to be central to the NZ First policy proposal. Instead, Peters argued they would “turn KiwiSaver into a serious New Zealand asset-owning entity”.
New Zealand already has a serious asset-owning entity. As at June 2024, the Super Fund had NZ$76 billion in total assets, of which $8 billion was invested domestically.
Targeting the core problem
The Retirement Commission made a strong case for increasing KiwiSaver contributions, and the government listened. However, the commission only proposed an individual contribution increase to 4%, and did not propose funding the additional contributions through tax cuts.
Putting aside the issue of the affordability of tax cuts proposed by NZ First, funding increased KiwiSaver contributions through tax cuts is effectively the same as if the government itself was saving.
On the other hand, increasing contributions to the Super Fund would back the world’s best performing sovereign fund (over the long run), target the core problem the fund was created to solve, and deliver benefits more evenly across future retirees.
In the current environment, with KiwiSaver contributions already set to increase, the Super Fund looks like the better option.
Michael P. Cameron does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
