When it comes to retirement savings, the systems in New Zealand and Australia each have their unique purposes and design. KiwiSaver, introduced in New Zealand, aims to fulfill a dual role: helping New Zealanders save for retirement while also assisting in purchasing a first home. This multifaceted approach encourages individual savings, not limited solely to retirement income replacement.
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“I heard Australia pays 11% for super. This is almost $300K more at retirement if you worked in Australia instead.“
(Original question on Reddit)
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The difference in the contribution rates for retirement savings between New Zealand’s KiwiSaver and Australia’s superannuation system can be attributed to several factors, including the design and objectives of the respective systems and the economic conditions of each country. Let’s break down some of the key reasons for the difference:
Purpose of the Systems:
KiwiSaver (New Zealand): KiwiSaver was introduced to help New Zealanders save for retirement and also to assist with buying a first home. It serves both a retirement savings and a home ownership goal. The government encourages participation through incentives like the member tax credit and employer contributions, but the focus is on individual savings and not solely on retirement income replacement.
Superannuation (Australia): The Australian superannuation system is primarily designed to provide income in retirement. It has a strong emphasis on long-term retirement income replacement, which is why the contribution rate is higher.
Government Policies and Social Safety Nets:
New Zealand: New Zealand has a universal pension system called the New Zealand Superannuation, which provides a basic income to all eligible retirees. KiwiSaver is meant to supplement this basic pension rather than replace it entirely.
Australia: Australia’s superannuation system is designed to reduce the reliance on the Age Pension, which is means-tested. The higher contribution rate is intended to help individuals achieve a higher level of self-sufficiency in retirement.
Economic and Fiscal Considerations:
The level of employer and employee contributions to retirement savings can also be influenced by the economic conditions and fiscal policy of a country. Australia has a larger economy and a different fiscal situation compared to New Zealand, which can affect the ability to sustain higher contribution rates.
Historical and Political Factors:
Each country’s retirement savings system has evolved differently over time, influenced by historical, political, and cultural factors.
It’s important to note that while Australia’s superannuation system has a higher contribution rate, it also has different rules and regulations, including restrictions on when and how funds can be accessed. KiwiSaver, on the other hand, allows for greater flexibility in accessing funds, such as for purchasing a first home.
Comparing the two systems based on contribution rates alone is an unfair measure. The sufficiency of retirement income is influenced by several factors, such as the total amount saved, investment performance, and the duration of time funds are invested before retirement. Moreover, retirement income in both countries may also be influenced by other sources such as personal savings, home ownership, and government pensions.
Ultimately, the choice between the two systems, or whether to work in one country versus the other, should consider various factors beyond just the contribution rate, including your individual financial goals, lifestyle preferences, and the overall retirement income framework in each country.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
