Michael Littlewood
4 November 2026
This article is one of a series that looks at the economics of retirement income issues. Each article will cover different aspects of public policy issues that are associated with retirement, pensions and saving. For each of those, there is always a trade-off and the ‘popular’ answer is often not the best solution for each individual, nor for the country.
Does compulsion actually help with our ageing population?
National’s new-found enthusiasm for compulsory savings is a ‘come to mother’ moment in our long, littered history of retirement income policy initiatives¹.
Some think that it’s the fiscal answer to our ageing population. They think that we all benefit by contributing to KiwiSaver throughout our working lives and, if people do not save for their retirement voluntarily, we should force them to behave in what is ‘clearly in their best interests.’
But is compulsion a good idea and is KiwiSaver the best vehicle? It will certainly change things, but will it ease the fiscal strains of an increasing number of pensioners, as some suggest?
Not necessarily. It could actually make things worse.
To unpick and understand the issue, we must first understand the economic impact and the potential consequences, both good and bad, of a change of his nature. Compulsory contributions to KiwiSaver will change the distribution of economic activity but, unless it increases overall economic activity, does not make individuals, as a whole, better off.
Let’s assume we can climb into an ‘economic helicopter’ and look down on the economy as a whole and follow the money.
For a retiree to have a successful retirement, workers must produce all the goods and provide all the services needed to meet the demands of both workers and non-workers (including our retiree). This is the first important principle. Each retiree depends on workers to produce goods and services (undertake economic activity), and our retiree makes or is given a claim on that activity. For our retiree, ‘success’ will depend on the strength of that claim, relative to both the strength of other claims, and the strength of the economy. The strength of the relative claim is what matters.
Compulsory KiwiSaver does not necessarily increase the strength of our retiree’s relative claim each and every year of their retirement.
When the government proposes a new policy, or changes existing policy, the first question is “does this genuinely increase the value of economic activity (i.e. the size of the pie)?” Next, “how does the new policy change the relative strength of claims by individuals and different groups of individuals, within the economy?”
The second important principle is that retirement security is not a one-time claim. It is a series of claims by our retiree in each year. So the strength of each claim relative to the other claims in that year will determine the value of our retiree’s economic security in that and subsequent years.
Public vs. private provision
In their simplest forms, the provision of retirement income both from both a state-provided pension, funded from current taxation, like New Zealand Superannuation (NZS), or by the sale of investments from private savings are claims on the country’s economic activity in each and every year.
Specifically, NZS is a claim on the country’s economic activity in the year it is paid. NZS’s funding is called ‘pay-as-you-go’ (PAYGO) for a very good reason. It doesn’t matter if the government continues to set money aside in the New Zealand Superannuation Fund (NZSF) or pays it 100% out of general taxation. The same economic claim process is true whether NZS is financed from public savings or from current taxation.
In each case, workers have to generate economic activity from which they pay tax or save and buy the investment from the NZSF. The presence of the NZSF simply changes the timing and nature of the claims. A separate article will suggest that New Zealand would be better off if the NZSF were disbanded.
Private savings, like KiwiSaver, are different but, in the end, similar. If you put money aside, you are buying an investment and you are ‘storing up’ claims on the economy, both today and tomorrow. Your retirement security will depend on the strength of each claim and its economic value in the years to retirement, and beyond. When you eventually sell each investment to meet retirement expenses, you will exchange one claim on the economy (investment) for another (cash). From our ‘economic helicopter’, the economic activity each year is spread among all the claims in that year.
In fact, having a strong economy is fundamental to the resilience of both public and private provision for retirement. Having a stronger economy than we currently expect will make things even better. More directly, this is the only thing that will make things better. Everything else is about sharing what we have (or will have).
When we reach age 65, we are entitled to NZS, a state pension payable until we die (or until they change the rules – a future article will look at why a government might need to change the rules).
Taxpayers of the day pay for NZS so they must earn incomes to deliver the tax that pays for those pensions. Pensioners are together, through the government, making a claim on economic output of the day - that is, the efforts of all taxpayers to earn the incomes, either by producing stuff that we sell to ourselves or to the rest of the world; or by delivering services that society needs to run effectively.
We know those retirees’ claims are growing as our population ages. In a later article, we will suggest that’s not the alarming prospect many suggest. It is not the number of retirees that matters as much as the percentage of tomorrow’s economic activity that will be required to meet their claims and their strength relative to all the other claims.
Much the same process of economic claims happens when the retired owners of private savings (including KiwiSaver) sell their savings to pay for their retirement. Private savings could come from all kinds of places: trading down the family home, selling the bach or other assets, money in the bank, KiwiSaver and even (less so these days) a private pension. Retirees can’t live directly on those assets. They must convert them to cash (sell them) or collect their investment income each year to buy the services they need in retirement, like food and shelter.
Again, we must look to tomorrow’s workers to earn sufficient income each year to buy those assets. In other words, private savers will also be making a claim on tomorrow’s economy to give them the dollars they need to pay for their groceries. This will happen every year they need the cash.
The strength of the economy, both today and tomorrow, governs what those privately owned assets will be worth. The buyers of those assets will pay only what tomorrow’s savers and consumers think they are worth and can afford.
The strength of the contemporary economy is, again, the only thing that really matters.
Holding everything equal, in the face of an ageing population with higher expected NZS costs, how does adding to those future claims with compulsory KiwiSaver actually help? That combination must mean larger dollar-value claims in total on tomorrow’s economy.
If we don’t see higher than expected growth in tomorrow’s economic output, each of those larger claims must produce a lower real value of tomorrow’s dollars from their investment earnings or, ultimately, from their sale to the next generation of owners. That equation (between the value of the claims and the dollars produced) necessarily self-balances because the buyers of those stored up private claims will only pay what they are worth to those buyers.
So, more dollar claims tomorrow does not necessarily mean a higher value of retirement incomes. It may only mean the same total value of claims spread amongst a larger population of retirees. Looking down at what happens from our ‘economic helicopter’ helps explain that process.
Increased KiwiSaver-derived claims on top of NZS claims won’t necessarily mean a more affordable retirement for all. As may now be clear, what really matters in all this is the strength of the underpinning economy that converts those claims to current cash.
Unless…….
Unless, that is, the government of the day reduces the real value of NZS pensions or makes them means-tested by the benefits that KiwiSaver delivers in due course. That would lower the total value of retirees’ claims on the economy. Means-tests are very complicated (more on that in a later article) but would be much easier to enforce if the test applied just to KiwiSaver. That already has a regulatory fence around it, so it would be relatively easy to change the rules about benefit payments.
So, without other changes, more KiwiSaver alone won’t help pay for an ageing population and might make things worse. Reducing NZS payments would help and more KiwiSaver could help a future government make that happen.
Published articles
PensionMatters has already published the following:
Superannuation: where does the money come from? (21 October 2026). accessible here
If compulsion is the answer, what was the question? (21 October 2026). accessible here
Future articles
PensionMatters will look at a range of topics associated with retirement incomes:
What really, really, really matters?
Do means-tests work?
What about tax breaks for retirement saving?
What is the fuss about ‘total remuneration?
What does National want?
How do other countries manage retirement income issues?
What should we do instead?
Does the New Zealand Superannuation Fund help?
Footnotes
¹ Different versions of compulsion are also supported by Labour and New Zealand First but not by the Act Party.