universal pensions and retirement savings in New Zealand

New Zealand has a simple, very successful pension system that could serve as a model for other countries. Unfortunately, despite its simplicity, few understand how the system works. The Government of Ireland, which is reforming its system, is an example of this misunderstanding, Susan St John points out.

New Zealand recently added an auto-enrolment, voluntary savings scheme, known as KiwiSaver, to its pension system. KiwiSaver has many shortcomings, is fiscally costly, and and is considered by many to be unnecessary since nearly all residents of New Zealand are guaranteed a basic old-age pension for life.

New Zealand has chosen to provide a simple Tier 1 through its basic universal residency-based state pension upon which other savings can be built. It is one of the factors that has made the introduction of the AE [auto-enrolment] scheme (KiwiSaver) more straightforward.

The [reform] Roadmap discusses the need for actuarially assessed Social Insurance funded by appropriate social security rates:

Social insurance contribution rates will be adjusted to ensure that there are sufficient funds available to Government to finance the payment of pensions. At present, social insurance rates are set as part of the annual budget process. This is a process that by its nature has a short-term focus and is not suited to setting rates to fund long term liabilities, such as pensions. In response to this challenge other countries, notably New Zealand and Australia, have implemented, or are considering implementing, an actuarial approach to balancing payment and contribution rates. In Ireland we do not use actuarial analyses to set rates in an explicit manner. (Government of Ireland, 2018, p 9-10).

Comment: This misinterprets the arrangements in New Zealand: while a national fund has been set up (New Zealand Superannuation Fund) it has no actuarial basis, nor are there separate social insurance contributions. New Zealand’s state pension is a flat rate, universal, taxable non-contributory payment to all who meet the residency test. It is best described as PAYG with partial prefunding from the NZ Superannuation Fund. That in turn is funded from contributions from budgetary surpluses, not contributions.

The New Zealand experience suggests it is easier for people to understand the impact of KiwiSaver on their retirement position if there is a secure Tier 1 universal basic pension based on residency not contributions.


After a review and request for proposals in 2014, nine out of the 31 register providers in New Zealand were chosen by open tender process to be default providers. The tenders were assessed … according to a range of criteria including … fee levels. The default providers must offer investor education ….


The latest assessment of the default provider regime shows that the FMA is less than happy with some default providers especially in their efforts to help default members make active choices. They also note that while higher risk is correlated with higher returns there is ‘no clear link between higher fees and higher returns part from a couple of standout funds’. …

There is a groundswell of dismay in New Zealand about the way the default regime has denied so many members the chance of good returns and low fees.

Susan St John, “Feedback on the ‘strawman’ proposal for Irish pension reform from New Zealand experience”, Retirement Policy and Research Centre, University of Auckland, draft working paper, November 2018, pp. 3, 7-9.

Susan St John is Director of the Retirement Policy and Research Centre. Her comments refer to the following document:

Government of Ireland, A Strawman Public Consultation Process for an Automatic Enrolment Retirement Savings System for Ireland (Ireland, Department of Employment Affairs and Social Protection, Automatic Enrolment Programme Management Office, 2018).


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