Fixing New Zealand's Retirement Crisis: Strengthen KiwiSaver with These 3 Policy Changes

New Zealand has a retirement challenge ahead. Not because KiwiSaver doesn't work. But because it hasn't had enough time or the right structural tweaks to carry the load properly.

Our population is ageing fast. More retirees. Fewer workers paying taxes to support them. People living longer than ever. The Treasury's He Tirohanga Mokopuna 2025 makes it clear. If nothing changes, NZ Super costs rise from about 5.1% of GDP now to around 8% by 2065. Government spending per person nearly doubles in real terms by then, and debt heads toward 200% of GDP under current policies. NZ Super was built as a safety net. It was never meant to fully fund retirement for everyone. Right now it's universal, paid the same to someone with nothing and someone with millions. That approach strains as numbers grow.

The fix isn't pumping more into NZ Super. It's strengthening KiwiSaver so people build real personal wealth to fund their own retirements and lean less on taxpayers.

In my experience at Compound Wealth, the clients who end up with the strongest outcomes all share one habit. They start early and let compounding do the heavy work. KiwiSaver can deliver that for every New Zealander. But policy needs to help it along.

Here are three changes that would make the biggest difference.

1. Give Every Child a $1,000 KiwiSaver Kickstart

Time beats everything in investing.

A child born today has about 65 years until retirement. At a realistic 7% annual return (after fees and inflation, based on long-term balanced fund history), a single $1,000 at birth grows to over $80,000 by age 65. No extra contributions needed. Just time and compounding.

That one boost won't cover a full retirement. But it starts the engine early. It gets families thinking about investing. It builds habits young. Most important, it lets compounding kick in right away.

The earlier money goes in, the less pressure builds later. And the less we all rely on NZ Super down the track.

2. Make KiwiSaver More Tax Efficient So People Leave Money Invested

People follow incentives.

If KiwiSaver gets better tax treatment, contributions rise and withdrawals drop. Money stays in longer. Compounding keeps working decade after decade.

Right now some treat it like a short-term account. Pull money early and you lose the growth forever. Stronger incentives, like enhanced tax credits for long holds or better contribution treatment, would push people to see it as the long-term retirement tool it is meant to be.

Recent changes help a bit. Default rates rise to 3.5% from 1 April 2026 then 4% in 2028. Government contributions halved from July 2025 (now 25 cents per dollar, max around $261). But we need more focus on keeping funds locked in and growing.

At Compound Wealth we guide clients on exactly this. Picking the right funds, avoiding early dips, aligning with real retirement goals so compounding delivers maximum impact.

3. Shift NZ Super to a Genuine Safety Net, Not Universal Handout

Today NZ Super pays the same amount regardless of wealth. A retiree with no savings gets exactly what someone with millions invested gets. That's popular but not sustainable as costs climb.

As KiwiSaver grows (total funds around $140–145 billion as of late 2025/early 2026 data, average balance around $37,000–$38,000 and rising), introduce gradual means testing. Target support to those who truly need it. Not to punish success in building wealth. But to direct limited government resources where they matter most.

The end goal is straightforward. People fund most of their retirement through KiwiSaver. NZ Super steps in for those who fall short. That flips the model to personal responsibility first, backed by a solid safety net.

This Is How We Fix the Retirement Challenge

KiwiSaver already performs well. Balances keep climbing (with strong recent growth from contributions, returns, and market conditions), contributions hit records, and compounding rewards those who stay invested.

But these tweaks would unlock its full potential:

• Early kickstarts to fire up compounding from day one.

• Better tax incentives to keep money working long term.

• A refocused NZ Super as targeted support, not blanket payment.

Over time this shifts retirement funding from government burden to individual wealth. That's the sustainable path.

The Compound Wealth View

I've seen it firsthand with clients. Start early. Contribute steadily. Resist pulling funds early. Compounding handles the rest and builds serious security.

KiwiSaver gives every New Zealander that shot. Policy just needs to encourage the behaviours that make it work best.

Start early. Stay invested. Let compounding do its job.

If your KiwiSaver could use a review, or you're wondering how to optimise it for the long haul, reach out. Email me at adam@compoundwealth.co.nz. We'll look at your setup, fine-tune contributions and funds, and build a plan that makes compounding work harder for your retirement.

Your future self will appreciate it.