New Zealand’s retirement income system scored 68.8 on the 2022 Mercer CFA Institute Global Pension Index and a B grade in overall index value after evaluating the retirement income system’s adequacy, sustainability, and integrity. New Zealand’s retirement income system is comprised of a National Pension System at the national level, the Employees’ Pension Insurance (EPI) at the occupational level, and other private products at the individual level.
National Level
The New Zealand Superannuation is a pay-as-you-go program funded fully by general revenues. Eligibility remains almost universal through a residency test; prior to 2021, an individual was required to reside continuously in the country for 10 years from age 20, with five of those years being after age 50, and be a resident on the date of application. Recent reform is set to gradually increase this requirement by a year every two fiscal years, with the goal of setting it at 20 years by 2042. Benefits are provided as a lifetime annuity and are flat despite differing levels of earnings during working life, with benefit levels being adjusted for two-person and one-person households. Individuals are eligible to receive the pension at age 65. Benefits may be taken as a lump sum or a lifetime annuities option. Withdrawals in retirement are tax-free.
Occupational Level
The KiwiSaver program was introduced in 2007 to increase savings among workers. Participation is voluntary, but its auto enrollment feature requires that a worker must opt out of the program. A one-time $1,000 tax-free government contribution is available to those who joined the program before May 21, 2015. To encourage saving, the government also makes an annual contribution (maximum NZ $521.43) to eligible members. Every seven years, the Government reviews the KiwiSaver default fund providers before selecting default providers through a competitive process. Once an account is created, it is portable among employers and requires contributions from both employers and employees. While contribution and investment options are available to workers, these are limited to prevent information overload. Therefore, employee contribution can be made at 3%, 4%, 6%, 8%, or 10% of their annual income and only several dozen funds are available to invest in. Employers are required to contribute at least 3% of a worker’s annual income, but are free to contribute at a higher rate. Early withdrawals are highly restricted before the retirement age of 65, but employees may be able to make early withdrawals of part (or all) of their savings if they are buying a first home, moving overseas permanently, suffering significant financial hardship, or seriously ill. Having a KiwiSaver account doesn’t affect a person’s eligibility for NZ super or reduce the amount they will be entitled to.
Individual Level
Other private products for retirement savings exist in New Zealand. These vary drastically depending on the product that is chosen. However, tax incentives for contributing to such products were removed in the 1980s.
Summary Sources
Guest, Ross. “Comparison of the New Zealand and Australian Retirement Income Systems.” Background paper prepared for the 2013 review of the retirement income policy by the Commission for Financial Literacy and Retirement Income. February 2013. Accessed 03/24/2020.
Harris, Richard. “Why New Zealand’s Retirement System Works So Well.” NextAvenue. July 25, 2014. Accessed 03/24/2020.
New Zealand Government. KiwiSaver. Accessed 03/24/2020.
OECD. “Pensions at Glance 2019.” November 27, 2019. Accessed 03/24/2020
Social Security Administration. “International Update, December 2021.” December 2021. Accessed March 30, 2022.
Current Issues
On March 1, 2020, the Ministers of Finance and Commerce and Consumer Affairs announced several changes that the government intend to improve the KiwiSaver default funds, including changing the investment mandate from ‘conservative’ to a ‘balanced’ fund, prohibiting default funds from investing in fossil fuels, and requiring default providers to maintain a responsible investment policy published on their website. The government will ensure KiwiSaver fees are simple and transparent, and members can make informed decisions about their retirement savings. Additionally, it will transfer non-active default members to any provider that is not reappointed as one of the new default providers. These new terms will apply to the default funds and new providers that are in place starting December 1, 2021.
During COVID-19, to alleviate the economic burden from the pandemic and encourage increased spending, New Zealand doubled the winter energy payment to people receiving a Main Benefit or New Zealand Superannuation. The winter energy payment began in 2017 in order to help support older New Zealanders and low income families. Because of the pandemic, people spent more time at home during the winter and incurred higher heating costs, which the government offset with the increased payments.
In November 2021, the government passed the New Zealand Superannuation and Retirement Income (Fair Residency) Amendment Bill. The new law will gradually increase the residency requirement for the country’s universal New Zealand Super from 10 to 20 years. Specifically, the required years of residency since age 20 will increase to 11 years on July 1, 2024, and then 1 year every 2 years thereafter until reaching 20 years on July 1, 2042. The new law does not change other residency rules, including that at least 5 years of the residency be since age 50. This law aims to reduce access to the government financed New Zealand Super among individuals who have spent a significant portion of their working-age lives outside of New Zealand. This change will bring New Zealand closer in line with other OECD countries, whose resident requirement for old-age programs averages at 27.5 years.
Summary Sources
Dickinson, Priscilla. “KiwiSaver default provider change: What it means for you.” Newshub. May 18, 2021. Accessed 07/27/2021.
“The Mercer CFA Institute Global Pension Index 2020.” The Mercer. 2020. Accessed 06/22/2021.
“New Zealand Superannuation and Retirement Income (Fair Residency) Amendment Bill.” Introduced Oct. 18, 2018. Accessed 06/22/2021.
Sepuloni, Hon Carmel. “Supporting New Zealanders Through Winter Months.” New Zealand Government. April 30, 2021. Accessed 07/27/2021.
Social Security Administration. “International Update, December 2021.” December 2021. Accessed March 30, 2022.
Source: Georgetown University’s Center for Retirement Initiatives
Last Updated 3/30/22