Unaddressed retirement shortfalls pose a significant issue, yet increasing the Super Fund instead of KiwiSaver appears to be the solution.
The University of Waikato's Professor of Economics, Michael P. Cameron, has republished an insightful article on the comparison between New Zealand's retirement savings schemes, the New Zealand Superannuation Fund (Super Fund) and KiwiSaver. This article was originally published under a Creative Commons license.
The Super Fund, a Crown investment vehicle established to alleviate the future tax burden of the universal public pension, is recognized as the world's top performing sovereign wealth fund over both 10- and 20-year horizons by independent sovereign investor analysts Global SWF. In contrast, KiwiSaver is a voluntary retirement savings scheme predominantly funded through employee and employer contributions, with contributions scaling with wages and higher earners contributing and accumulating more.
The Super Fund primarily funds superannuation payments, meaning every additional dollar earned by the fund supports a benefit paid essentially equally to all retirees. This addresses inequality in retirement resources, unlike KiwiSaver, which is designed primarily to build household retirement balances (with early access for first home deposits).
Recent proposals suggest an individual contribution increase to 4% for KiwiSaver, but without funding the additional contributions through tax cuts. On the other hand, NZ First leader Winston Peters proposed a major KiwiSaver overhaul, including making membership compulsory and increasing minimum contributions from both employees and employers to 8%, rising to 10% later. These proposals go beyond the already budgeted increases to minimum KiwiSaver contributions from 3% to 3.5% in April 2026, and 4% in April 2028.
However, funding increased KiwiSaver contributions through tax cuts is effectively the same as if the government itself was saving. This is because the Super Fund, set up to alleviate the future tax burden of the universal public pension, looks like the better option in the current environment, with KiwiSaver contributions already set to increase.
The Super Fund delivered a 10.03% return per year after costs over the 20 years to June 2024, compared to the average Kiwisaver 10-year return (for higher risk growth funds) of 8.3%. The Super Fund had NZ$76 billion in total assets as at June 2024, with $8 billion invested domestically.
Despite these advantages, it's worth noting that in 2024-25, 30% of Kiwisaver members did not contribute to Kiwisaver in any given year. This highlights the importance of encouraging participation and ensuring that the benefits of retirement savings schemes are accessible to all.
In conclusion, while KiwiSaver and the Super Fund serve different purposes, the Super Fund's exceptional performance and its role in addressing inequality in retirement resources make it a compelling choice. However, the lack of a specific proposal to contribute to the government's Superannuation Fund instead of KiwiSaver in the search results indicates that this is a topic worthy of further discussion and consideration.
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