KiwiSaver locks your money away until 65, yet the assets inside are highly liquid. Outside KiwiSaver, investors typically get paid more for accepting illiquidity. Inside, you don't. A commentator has been asking why that premium doesn't exist.
KiwiSaver is built around a structural paradox. The assets held inside KiwiSaver accounts — listed shares, bonds, managed funds, cash — are among the most liquid investments in existence. They could be sold on the markets in minutes. Yet the KiwiSaver scheme locks those same assets away from the member until the qualifying age, currently 65, with no compensating premium for that lock-up.
Across almost every other corner of finance, investors who give up access to their money are compensated for it. Term deposits pay more than on-call savings accounts. Private equity funds target returns above public equity markets partly because investors cannot pull capital out at will. Unlisted property syndicates typically price below comparable listed real estate because they are harder to exit. This additional return is called an illiquidity premium — and the principle is visible in some form across nearly all asset markets.
KiwiSaver appears to invert this logic.
The case being made
The point has been made recently by interest.co.nz contributor Joseph Darby: above the minimum contribution rate needed to capture the employer match and the government contribution, every additional dollar put into KiwiSaver is locked away for decades without any extra return for accepting that lock-up. Investors in other contexts — whether term deposits, private credit, unlisted assets, or other instruments — are explicitly paid for giving up access to their capital. KiwiSaver members are not.
This is not an argument against KiwiSaver as a system. For many people — particularly those who would not otherwise save consistently for retirement — the automatic savings mechanism and employer matching make KiwiSaver highly valuable. The FMA's 2025 KiwiSaver Annual Report puts the average member balance at $36,349, and at the population level under-saving remains the dominant problem.
But the average is misleading in one important respect. KiwiSaver is only 18 years old. Younger members with shorter contribution histories drag the average down. Many older, higher-earning New Zealanders hold a mix of legacy superannuation, term deposits, investment property, and direct shares alongside their KiwiSaver. For them, KiwiSaver may already be doing more than its share of retirement saving work — and the additional liquidity constraint may not be serving them well.
What it means in practice
The practical implication is straightforward to describe: a disciplined saver who has secured the full employer match and the government contribution, and who still has surplus income to direct toward long-term wealth, faces a choice that gets less attention than it should. They can continue adding to a KiwiSaver balance that is invested in liquid assets but is structurally inaccessible for decades — or they can allocate that surplus toward assets that offer both returns and access.
This is not an argument that one choice is universally correct. It depends on individual circumstances, tax position, other savings, and goals. But the structural feature is real: the assets inside KiwiSaver are liquid in the market but illiquid by design, and that design delivers no compensating premium to the member.
The conversation about contribution rates — should people be saving more, or less — tends to arrive downstream of this question. Before deciding whether to increase contributions, it is worth asking whether the next dollar saved is working in the right place relative to what you are giving up in access.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.