KiwiSaver: How a Savings Scheme Built New Zealand’s Fund Industry

KiwiSaver did more than nudge New Zealanders into saving: it manufactured, almost from nothing, an industry of fund managers with a guaranteed and growing flow of other people’s money. This article explains how the scheme works, who the main providers are and how they earn their fees, why the banks are losing ground to specialist managers, what the 2025 budget changed, and what a NZ$148bn pool means for the country’s capital markets. It is part of the New Zealand Company Stories hub.

How did KiwiSaver start?

As a response to a low household saving rate. The Labour-led government launched KiwiSaver in July 2007, using automatic enrolment and cash incentives to draw workers into private retirement accounts. Compulsion, rejected by voters in a 1997 referendum, was avoided.

New Zealand had dismantled its tax incentives for retirement saving in the late 1980s and, by the 2000s, had one of the thinnest private pension systems in the developed world. Households held their wealth in houses. The finance minister, Michael Cullen, who had earlier set up the NZ Super Fund to pre-fund the state pension, designed KiwiSaver as its individual-account counterpart. The scheme borrowed from behavioural economics: people are enrolled when they start a job and must act to leave, and most do not.

The initial sweeteners were generous. Every new member received a NZ$1,000 “kick-start” from the government, along with an annual tax credit and a compulsory employer contribution. Take-up far exceeded official forecasts. Later governments trimmed the subsidies. The kick-start was abolished in 2015 and the annual government contribution has been cut more than once. By then the habit was established. Membership is now 3.44 million in a country of about 5.3 million people.

How does the scheme work today?

Contributions are deducted from pay by Inland Revenue and passed to the member’s chosen provider. From 1 April 2026 the default rate is 3.5% from the employee and 3.5% from the employer. Members pick a fund type; the money is invested and locked in until 65.

Employees can choose to contribute 4%, 6%, 8% or 10% of pay, or apply for a temporary reduction to 3%. The self-employed decide for themselves how much to put in. The government contributes 25 cents for each dollar a member saves, up to NZ$260.72 a year, which requires the member to contribute about NZ$1,043.

Withdrawals before 65 are allowed in limited cases: buying a first home after three years of membership, significant financial hardship, serious illness and permanent emigration. The first-home exception has become a central feature. In the year to March 2026 more than 50,000 members withdrew NZ$2.2bn for a house deposit. For many younger members KiwiSaver functions as a deposit-saving account first and a pension second, which partly explains why balances at retirement remain modest.

Members who never choose a provider are allocated to one of six default providers appointed by the government. Since December 2021 these have been BNZ, Booster, BT Funds Management (Westpac), Kiwi Wealth (since absorbed by Fisher Funds), Simplicity and Smartshares, now called Smart, the funds arm of the stock-exchange operator. In the same reform, default funds were switched from conservative to balanced portfolios, fees were cut, and investment in fossil-fuel producers was excluded.

How do KiwiSaver providers make money?

By charging a percentage of each member’s balance. The Financial Markets Authority counted NZ$978m of fees in the year to March 2026, about 0.7% of funds under management. Because balances grow with contributions and markets, revenue rises even when a provider wins no new customers.

That is the commercial attraction of the scheme. A KiwiSaver provider has an annuity: money arrives every fortnight from employers via the tax department, members rarely switch, and withdrawals are restricted for decades. In the year to March 2026 contributions of NZ$13.2bn and investment returns of NZ$10.7bn flowed into the system, and contributions exceeded withdrawals by NZ$6.4bn. Total fees rose 12.6% in that year, faster than membership.

Fee levels differ widely by business model. Morningstar’s quarterly survey estimates the industry’s annualised fee take at more than NZ$1.2bn, an average of about 0.81% of assets on its measure, with active managers well above that and passive providers well below. Its mid-2024 breakdown showed the pattern clearly: Milford, with under 9% of assets, earned an estimated NZ$102m in fees, about as much as ASB earned on a book almost twice the size, while Westpac earned about NZ$50m on 10% of assets. Active specialists charge more and, on the evidence of money flows, members have been willing to pay.

The regulator has pushed in the other direction. The FMA requires providers to show that fees represent value for money, and fixed monthly membership charges have largely disappeared. Growth funds, which carry higher fees than conservative ones, are now the largest category at about NZ$68bn, as members and advisers have accepted that long horizons justify more risk.

Who are the main providers, and who owns them?

Five firms hold about 63.5% of the money. Three are arms of Australian-owned banks. Two, Fisher Funds and Milford, are New Zealand-based specialists. Behind them come Generate, Booster, Simplicity, Smart and a tail of smaller schemes.

ANZ has led since the scheme began, helped by its early purchase of the ING funds business and the reach of the country’s largest bank; its wider position is covered in the Big Four article. Across all its products ANZ’s New Zealand funds under management were NZ$41.9bn in 2025. Size has not meant performance: Morningstar’s survey for 2024 placed ANZ’s main multi-sector funds last or second-last in the conservative, balanced and growth categories.

Fisher Funds, founded in 1998 by the stock-picker Carmel Fisher, grew by acquisition. It is majority-owned by the Toi Foundation, the Taranaki community trust that also owns TSB Bank, with the American private-equity firm TA Associates holding a minority. In 2022 it bought Kiwi Wealth from Kiwibank’s parent for about NZ$310m, a deal that lifted it past ASB for a time and removed the state-owned bank from the industry, as the Kiwibank story recounts.

Milford, an Auckland active manager largely owned by its staff, has been the main winner of the past decade: about NZ$6.1bn of KiwiSaver money in mid-2023 had become NZ$15.8bn three years later. Generate, which sells largely through advisers, has grown at a similar pace from a smaller base. Simplicity, founded in 2016 by the former fund manager Sam Stubbs, is the anomaly: a non-profit owned by a charitable trust, charging very low fees for mostly passive funds and directing part of its portfolio into building rental housing.

Why are the banks losing market share?

Because KiwiSaver is easy to switch and performance and fees are published. Banks won the early land-grab through branch networks and default status. Since then members have steadily moved to specialists offering higher returns or lower fees. ANZ’s share has fallen from 27% in 2013 to 16.3%.

In December 2013 bank-owned schemes held about 60% of KiwiSaver assets. By mid-2026 the figure was about 45%. The loss of default-provider status in 2021 hurt some banks; ANZ, ASB and others were dropped when the government re-tendered on price. More important has been member behaviour. Transferring a KiwiSaver account takes an online form and a few days. Comparison websites, financial advisers and the FMA’s annual report all make relative performance visible, and the regulator reports rising numbers of fund switches and scheme transfers.

The contrast with everyday banking is instructive. The Commerce Commission found that customers almost never change their main bank, which is one reason four lenders keep nearly 90% of mortgages. In KiwiSaver the same institutions face a market with standard products, mandatory disclosure and near-frictionless switching, and they have lost a quarter of their share in a little over a decade. It is the closest thing New Zealand has to a controlled experiment in what open banking is supposed to achieve.

What did the 2025 budget change?

It raised compulsory-style contributions and cut the state subsidy. Default employee and employer rates went from 3% to 3.5% on 1 April 2026 and rise to 4% on 1 April 2028. The government contribution was halved from 1 July 2025 and removed for high earners.

The details matter for payroll. The maximum annual government contribution fell from NZ$521.43 to NZ$260.72, paid at 25 cents per dollar of member contributions instead of 50 cents. Members with taxable income above NZ$180,000 no longer receive it. In partial compensation, 16- and 17-year-olds became eligible for the government contribution from July 2025 and for compulsory employer contributions from April 2026. Employees who cannot afford the higher rate can apply to stay at 3% temporarily, in which case the employer need only match 3%.

The fiscal logic was to shift the cost of retirement saving from taxpayers to wages. For employers the change adds one percentage point to payroll costs by 2028 unless staff are on total-remuneration contracts. For members the effect compounds: the Retirement Commission estimates that a 35-year-old on about NZ$80,000 would retire with a balance roughly 25% larger at a 4% rate. A survey for ANZ Investments before the April 2026 change found that 34% of members intended to stay at the new default, 10% planned to ask to drop back to 3% and 3% intended to suspend contributions.

What are the latest numbers?

Funds under management were NZ$138.8bn at 31 March 2026, according to the FMA, and NZ$147.7bn at 30 June 2026 on Morningstar’s count after a strong quarter. The average balance was NZ$40,340, up 11%, crossing NZ$40,000 for the first time.

The system added 112,471 members in the FMA’s reporting year. Assets have grown from about NZ$97bn in mid-2023 and NZ$122bn at the end of 2024. Markets did much of the work in 2026: the June quarter alone added NZ$11.3bn, after a NZ$5bn fall in the March quarter. Morningstar’s averages for that quarter show the usual hierarchy of risk and reward, with aggressive funds returning 11.9% and conservative funds 3.3%. Over ten years aggressive funds have averaged about 10.3% a year, growth funds 8.9%, balanced funds 7.2% and conservative funds 4.1%.

The withdrawal side is maturing too. Members aged 65 and over accounted for almost half of all withdrawals in the year to March 2026, a sign that the first generation of savers is starting to draw down. Hardship withdrawals have also climbed during the cost-of-living squeeze, which the industry and the regulator both watch as a measure of household stress.

How does KiwiSaver compare with Australian superannuation?

It is far smaller in ambition. Australian employers must pay 12% of wages into superannuation, with no opt-out. KiwiSaver’s combined default is 7% from April 2026, voluntary, and can be raided for a house. Australia’s pool is several times larger relative to GDP.

The gap shapes both economies. Australia’s compulsory system, begun in 1992, has produced funds large enough to buy airports, toll roads and whole listed companies, and several of them now invest in New Zealand infrastructure. KiwiSaver providers, by contrast, manage balances that average NZ$40,000 and must keep most assets liquid because members can transfer at any time. Stories of the Australian funds can be found in the Australia Company Stories hub.

The other structural difference is the first pillar. New Zealand’s state pension is universal and not means-tested, so KiwiSaver balances do not reduce it. Australia’s age pension is means-tested, so superannuation partly replaces it. A New Zealander therefore retires with the full pension plus whatever KiwiSaver holds, which lowers the stakes of under-saving for those on low incomes and weakens the political case for compulsion.

What does KiwiSaver mean for New Zealand’s capital markets?

It is the largest pool of domestic long-term capital the country has ever had, and it is growing by more than NZ$6bn a year before investment returns. Yet most of it is invested offshore or in liquid listed assets, and little reaches unlisted New Zealand companies or infrastructure.

The reasons are practical. Funds must price units daily and meet transfer requests within days, so illiquid holdings are awkward; fee caps on default funds leave little room for expensive private-market strategies; and the local share market is small. Policymakers nonetheless see KiwiSaver as the natural buyer of last resort for domestic assets. When the government considered selling a stake in Kiwibank in 2025 it named KiwiSaver funds first among intended investors, and officials have consulted on rule changes to make private assets easier for schemes to hold.

Some providers have moved ahead of the rules. Simplicity has put members’ money into build-to-rent apartments; several managers hold stakes in retirement-village operators and unlisted infrastructure, sectors examined in the article on Summerset and Arvida and in the piece on the infrastructure deficit. The stock exchange, meanwhile, has become a KiwiSaver business itself: NZX’s Smart funds arm had NZ$18bn under management in mid-2026, and its growth now outpaces the exchange’s trading revenue, as the NZX article explains.

What can founders and CFOs learn from KiwiSaver?

That defaults create markets, that recurring flows are worth more than one-off sales, and that incumbents lose share when products are comparable and switching is easy. The scheme is a case study in how policy design determines industry structure.

1. Design the default. Automatic enrolment did what decades of tax incentives had not. In product design, pricing and employee benefits, the option that requires no action wins most of the time.
2. Value the annuity. A provider with NZ$15bn at a fee of about 1% has revenue that grows with wages and markets and needs no reselling. Businesses with similar contractual, recurring inflows deserve a higher multiple.
3. Distribution wins the first decade; product wins the second. Banks captured 60% through branches and defaults, then lost a quarter of it to managers with better returns or lower costs.
4. Low price can be a strategy for a non-profit. Simplicity’s structure lets it undercut rivals permanently, a threat that for-profit incumbents cannot easily match.
5. Budget for the 4% rate. Employers should model the April 2028 increase now, alongside minimum-wage and holiday-pay changes, since it applies to every enrolled employee.

What happens next for KiwiSaver?

Higher contributions, more consolidation among providers and a louder argument about compulsion and private assets. On current flows the scheme could pass NZ$200bn around the end of the decade, by which point the default rate will have been 4% for two years.

The political debate is moving towards larger contributions. Proposals to lift the combined rate well beyond 8% over time have been floated, with Australia as the reference point. Employers resist the wage cost; the Treasury worries about low earners being forced to save while carrying debt. The election on 7 November 2026 will not settle it, but the direction of travel since 2025 is towards a bigger, more compulsory scheme with a smaller state subsidy.

For the industry the questions are commercial. Fee pressure from Simplicity, Smart, Kernel and other low-cost entrants is steady, and the FMA’s value-for-money regime gives it teeth. Scale matters more each year, which favours further mergers of the kind that folded Kiwi Wealth into Fisher Funds. The banks must decide whether funds management is a core business or a distribution arrangement. And as the first cohorts reach 65 with meaningful balances, providers will have to build retirement-income products for the drawdown years, which the scheme has so far barely addressed. KiwiSaver has taught New Zealanders to accumulate. Its providers have barely begun on how savers should spend.

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