As KiwiSaver turns 18 in July, how successful has it been in helping New Zealanders save for their first home and retirement? Head of KiwiSaver at Milford, Murray Harris, talks to Ryan Bridge about why he rates it 7/10, and what could be done to give it a perfect score.

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Bridge talks Business: 4 March 2025
Episode Transcript

Ryan Bridge
Kia ora, I’m Ryan Bridge and this is Episode 23 of Bridge talks Business with Milford. Since 2007, we Kiwis are more than $100 billion richer thanks to KiwiSaver. More than 3 million of us are now members. There’s very little argument from either side of politics that this scheme has been a huge success for the country, and our retirements. But by international standards, we still have a big game of catch up ahead of us, and some are calling for change. More on that shortly. First, here’s your top five business bits from the past week.

1. Nvidia results beat guidance by $2 billion. But despite this, the stock has struggled mid-concerns about the Chinese firm DeepSeek and full investor positioning. We’re watching Investor Day, March 18, very closely.
2. A sharp rally in European defense stocks with EU nations entering a bit of an arms race, boosting defence spending under pressure from Donald Trump.
3. The Trump/Vance/Zelensky Oval Office showdown has surprised investors, anxious on how it might affect or potentially slow down talks for peace in Ukraine.
4. Consumer confidence in the US is back to its lowest level since the middle of 2024, amid concerns about Trump’s tariffs.
5. This week the key focus is on US non-farm payrolls and the ISM reports. Payrolls tell us about the labour market, the ISM reports on manufacturing and services, a key barometer of growth for the world’s largest economy.

If you’re one of the 3 million Kiwis who are a KiwiSaver member, then we’ve got some information for you today, because turns out we’re having a birthday. We’re all sharing a birthday for this scheme, which, it must be said, on all sides of politics is pretty much universally endorsed now. What changes could be made to the scheme to make it even better, to make sure that it serves us as investors, as potential retirees even better, but also as a country?

Don’t forget that this segment is informational only and should not be considered financial advice. Today, I’m really excited to have Murray Harris on the programme. Now, he’s the Head of KiwiSaver at Milford and he knows a thing or two about what we’re going to discuss today. Murray, welcome to the show.

Murray Harris
Thanks for having me. Please be here.

Ryan Bridge
So KiwiSaver is turning 18 this year, on the 1st of July, which basically means it’s able to go to the pub. Should we be toasting KiwiSaver? Has it been a success?

Murray Harris
Well, yeah, I think it has been. I mean, in terms of increasing the awareness of Kiwis now that we need to provision for our retirement savings while we’re working. The fact that we’ve got 3.3 million people in KiwiSaver in 17 years, it’s become a barbecue conversation, right? So, maybe I’m going to the wrong type of barbecues. But every time I go to a barbecue, there seems to be a conversation come up. Maybe it’s because of my job, but young people are talking about their KiwiSaver because, of course, they can use it to get into their first home, which has been great. So, we’ve got really high participation in the young cohort. Ninety seven percent of 25 to 34 year olds are in KiwiSaver, and 95 percent of 35 to 44 year olds. That’s great. 80 percent of people in paid employment are contributing. We’ve got only a small number that are on a savings suspension, around five percent, and we’ve amassed $120 billion. From that perspective – participation, awareness – absolutely a success. But I’d score it probably a seven out of 10 overall.

Ryan Bridge
OK, interesting. I want to ask you about that. But you’re right. Just in terms of awareness and even awareness of things like the stock exchange, business news, it sort of opens your mind to that whole world.

Murray Harris
Well, it’s turned every Kiwi in KiwiSaver into an investor. And so they have to pay attention to what markets are doing. They’re looking at their balances. They probably shouldn’t look at their balances every day, because they’ll go up and down. And this is a long-term scheme. But yeah, you’re right. It’s turned people into investors, which is good.

Ryan Bridge
So, seven out of 10, that’s a good score, but it’s not an excellent score. So, what exactly are you seeing that’s wrong or that needs changing?

Murray Harris
It was better than most of my scores at school. But anyway, as I said, participation is good. The main issue we’ve got is our contribution rates are too low. So, that’s the real issue. If we look at contributions, about two thirds of people are only doing the minimum three percent. Ninety percent of employers are only matching to that minimum three percent. Over half of employers are using some form of total remuneration. Well, we might come back to that point. And so, our contributions are too low for us to fund the retirements that we dream of, and to live the dignified retirement that we all want to live – even with New Zealand super on top. So, that’s the first issue.

Ryan Bridge
Just on that. So, if our rate was – you said two thirds of us are on three percent?

Murray Harris
Contributing three percent. That’s the minimum rate.

Ryan Bridge
And then if you look at Australia, their minimum is what, 11 and a half?

Murray Harris
Yes, going to 12 in July.

Ryan Bridge
And then I think in America with 401k, the average is 4.6?

Murray Harris
Yip.

Ryan Bridge
So, we are below.

Murray Harris
We are well below. And if you look across OECD countries, our KiwiSaver contributions are about two percent of GDP. We’re down there with Costa Rica and Portugal.

Ryan Bridge
Wow.

Murray Harris
Australia’s seven percent. Switzerland’s eight percent. Iceland, I think are number one on the OECD over 10 percent. Their retirement savings are over 10 percent of GDP. So, yeah, we need to do a better job. We’re not going to be funding the retirements that we dream of at three plus three. We’ve got a different regime here. It’s not a compulsory regime. So, I think given that it’s voluntary, participation is great. But we’ve got the issue where the setting at three percent – that’s what the government has said you need to do. That’s the minimum. They say save three percent of your income. People think, oh, that’s all I need to do. And then you’ve got your employer contribution on top. That’s actually taxed. So, it’s only two and a half percent in your hands. So, you’re only saving five and a half percent of your income. And so, people are going to be under-funding their retirement, thinking that at three percent, that’s what the government’s told me to do – therefore, that’s how much I’ll save.

Ryan Bridge
How far underfunded? What will the shortfall be when they get there?

Murray Harris
Yeah, I mean, that’s a really good question. And we’ve got some numbers around that. I think the average balance right now is $34,000 after 17 years. It’s not a lot of money. The New Zealand Society of Actuaries did some research a couple of years ago. They said that a 45-year-old today, their balance in 20-years’ time, when they’re 65, will be $156,000. That’s not a lot of money, really, when you think about how much you’re going to need to live in retirement, we might come to that one shortly. So, there is a big gap. We talk about mind the gap. We need to close that gap. And the only way to do that is to increase people’s savings rate.

One of the other issues that we’ve got is that there’s really no incentive to do more than that minimum. So, the government has said the minimum is three percent, but you could contribute four, six, eight or ten. Most people don’t because there’s no incentive to do that. As long as you’re getting your $521 from the government, there’s no incentive to save more. So, there’s no sort of tax incentives or concessions or anything to encourage people to do more. And then that total remuneration I mentioned before, this is where employers are paying the KiwiSaver contribution as part of the base pay rather than on top. That’s not fair. It’s not part of the intention of KiwiSaver. And so that should be stopped as well.

Ryan Bridge
Right. So, an employer would have to say your total package is XYZ plus KiwiSaver.

Murray Harris
Yes – and that was the intention of KiwiSaver. That was how it was supposed to be. In Australia, it’s a bit different because the employer makes all the contribution, but it’s compulsory. It’s a different regime there. But for us, the intention was that the employer would be contributing on top and a lot are not.

Ryan Bridge
And we’ve just kind of snuck it in with the package?

Murray Harris
Yes.

Ryan Bridge
So, these things you’re talking about sound like they might be expensive to fix. I mean, either we are going to have to pay more of what we earn, and during a cost of living crisis or something like that, that might seem a bit unpalatable, or the government will have to come up with some incentives and or the employer will have to contribute more as well. What sort of options are there for the incentives that you mentioned?

Murray Harris
Yeah, and fully aware that these things come at a cost, but sometimes it’s the short term investment for the long term gain. And there are lots of flow-on benefits for the economy in general when you’ve got a good, strong saving system. And look, there’s a bit of quid pro quo there for the government as well. I think the things we need to consider to get us closer to a 10 out of 10 is that first and foremost, we need a review of the settings. When KiwiSaver was established in ’07, the intention was that every seven years those settings would be reviewed to make sure that it’s achieving its objectives. This is quite separate from the provider review, which last happened in 2021. The core settings have not been reviewed for a long time. So, we’re overdue for that. That would be the first thing we’d say. It’s time for government to get to the table and review those settings. Is it achieving what we expect or what the government expect it should be?

Then there’s the contribution rates. As we mentioned, we’ve established three plus three isn’t going to get us. Well, three plus two and a half isn’t going to get us to where we need to be. So, do we need to review that minimum setting? And you could very easily move that to say 5 percent as a minimum contribution by the employee and the employer for that matter. But to make it easier for people, you could say, look, you could go there in one jump if you felt you could afford to do that, understanding cost of living crisis and household budgets, or you could do it incrementally half a percent each year for the next four years.

And then once that money is coming out of your pay, half a percent increase, hopefully people don’t notice that. But the benefit that will provide down the track, that extra contribution, that extra money that’s been invested in compound over many, many years will pay back in spades. And then your employer contributions – yes, we could review those as well. That total remuneration that should be done away with. And then perhaps some other tax incentives that the government could consider, like in Australia. So, in Australia, your super contributions come out of your gross pay before tax, whereas here, our KiwiSaver contributions come out of our after-tax pay. That would make a big difference.

Ryan Bridge
Yeah.

Murray Harris
Your contributions in Australia go into a fund and they’re taxed at 15 percent while invested. Here, we’ve got the PIE tax regime. So, we do benefit from an advantage in tax, but it’s 28 percent for most people. So, there could be some quid pro quo there, which, sure there’s a small cost to the government in the short term. But the benefits down the track to the wider economy would far exceed the short-term cost.

Ryan Bridge
You talk about the flow on effects. It’s obviously the public markets, the stock exchange, but also potentially they’re looking at making some changes so that private assets, we could get our hands on more private assets through our KiwiSaver funds, which is great for New Zealand, I think.

Murray Harris
Well, a strong savings system means that there’s more capital in the country and in the economy to be invested. Now, you know, a lot of KiwiSaver money at the moment is going offshore. Most of it, actually. We do need more of it invested in the New Zealand market. So, there has been the discussion around private markets. And I know you spoke to Tom on this programme recently about that, and our views on that. More money coming from the savings system into the New Zealand share market makes it a more vibrant market. Money going to great New Zealand businesses so that they can invest and employ more people. And ultimately, they pay more taxes and then your private equity infrastructure. There’s just a lot more opportunity. And again, we look at Australia, the superannuation savings system in Australia, it’s worth $4.2 trillion today. It’s forecast to be $9.5 trillion by 2050. Now you go to Australia, what do you see? Lots of great motorways, bridges, tunnels, roads, some of them are toll roads, trains, public transport systems. Superannuation money has built a lot of that infrastructure.

Ryan Bridge
And, so you said they’re heading towards – what four point …?

Murray Harris
They’re at $4.2 trillion now, $9.5 trillion by 2050.

Ryan Bridge
And we’re at what? Just over $100 million?

Murray Harris
$20 billion. Long way to go.

Ryan Bridge
So, we’ve got a long way to go. How much do we need once we do come to retirement age? Obviously, I’m a lot longer off that than you are. How much do we need once we get there? What’s the advice?

Murray Harris
Yeah, well, it’s a personal question. You need to decide how much you want. Well, you know, what type of retirement you want to live. Do you want a no-frills, basic retirement, where you’ve just got the basics covered? For some people, New Zealand super might actually be enough for them to live off. Or, do you want the type of retirement where you’ve got a few choices? And, you know, I know for me personally and I’m sure for you, we work hard. When we retire, we want to do all the things we dreamt about doing while we’re working.

Ryan Bridge
Right.

Murray Harris
So, what is that? More travel? More time with friends and family, socialise …

Ryan Bridge
Restaurants.

Murray Harris
Restaurants, holidays, play more sport, might be more golf or bowls or tennis or whatever, or involvement in the community. They are the things you want to do.

Ryan Bridge
All right. All this is sounding quite expensive. So, how much will it cost?

Murray Harris
Well, Massey University do research every year around what it actually is costing for New Zealanders to live in retirement. And they’ve just released the most recent update to that. What that says is for a couple living a no-frills retirement, their basics – in a metropolitan city like Auckland – are about $910 per week just to live.

Ryan Bridge
Wow.

Murray Harris
A couple in a metropolitan city living a choices retirement, it’s costing them about $1,740 a week. Now, New Zealand Super will pay a couple of $799 a week. Right. So, there’s a big gap. And that’s where I say mind the gap. That’s the gap we need to close. How do you close that gap when you’ve got to fund that with your own private savings?

Ryan Bridge
And not on three percent.

Murray Harris
Not on three percent. And so, this is why we say the time is right to have that conversation. In terms of a lump sum, if you’re a couple living in the provinces, about $446,000 they say is what you need as a lump sum at age 65 to survive. But if you’re a couple living in a metropolitan city and you want a choices lifestyle, it’s about $1.1 million. Now, we don’t want to scare people and make it sound scary that I’m never going to get there. I’m never going to save that much. It’s not really about what the final number is. It’s about what you can do along the way. Contribute, save and then you add to that with some other savings along the way or other funds that you might have. But three percent plus two and a half from your employer after tax is not going to close that gap. It’s not going to get us to where we need to be.

Ryan Bridge
Fascinating discussion. Murray, thank you very much for being with me.

Murray Harris
Thank you. It’d been a pleasure.

Ryan Bridge
That was Murray Harris. He’s the head of KiwiSaver at Milford. A really interesting discussion because it’s probably not something that we all want to do- to pay more towards our retirement or for our employers to do – to pay a little bit more towards our retirement as well. But in the long run, man, it’s worth it, isn’t it? And if you can afford to do it, if you find the country in the right place at the right time to be able to do something like that, then the benefits are really just exponential. So, a really interesting discussion today. And don’t forget, you can share this podcast with your friends or other investors. You can follow us on all of your social media channels and wherever you listen to your podcasts. We’ll see you next week.

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