As an alternative to withdrawing the whole deposit, most KiwiSaver schemes offer the choice of leaving the money invested or taking drip-fed payments over a period of time.
"So that's entering into an agreement with your provider to pull out $1000 a month or whatever the arrangement allows them to do, until the balance is consumed," said Bruce Kerr, of Workplace Savings NZ. "Or they can take out the whole lump sum. It's entirely motivated by what the individual KiwiSaver wants."
Mr Kerr said that although no figures had been collated, most people appeared to be taking out the bulk of the money when they were eligible.
Their balances were likely to be modest after such a short saving period - one provider estimates withdrawals of about $15,000.
Mr Kerr said it was encouraging that there were now 2.11 million Kiwis enrolled but as their KiwiSaver balances grew over the next few years, the Government needed to think of ways to educate people on how to use the money once it was withdrawn.
"Ideally, as financial literacy grows across New Zealand, we hope that people will be a little better informed as balances become more meaningful in the context of the total assets of the people retiring. They'll put more thought into how they want to use it. At this stage it's an evolving storyline, and that's going to take a while for that kind of reflection to be seen in the behaviours of people in KiwiSaver.
"As contributions over time start to amass to something that's more meaningful than the value of your car and becomes the second-biggest asset after your house, we really hope people will sit up and take more notice about it."
Some initiatives were under way.
The second annual Money Week in September, run by the Commission for Financial Literacy and Retirement Income, had been a success last year, Mr Kerr said. The event invited people of all ages to engage in activities that would enable them to become more money-wise, such as university lectures on making financial decisions, sessions on retirement planning and free tours of the Reserve Bank Museum.
The Ministry of Education was also now embracing financial literacy as part of the maths and social sciences curriculum, which was a positive sign, he said.
After a year in KiwiSaver, members can elect to take a contribution holiday for a period of three months to five years. Today marks the five-year cut-off for the first batch of people who took a holiday as soon as they could, and for as long as they could.
"They take them for a number of reasons," Mr Kerr said. "Some people who were automatically enrolled may have waited until they had been in the scheme for a year and then said, 'I really can't afford to contribute'."
Financial adviser Daniel Carney, of Goodlife Financial Advice, said the Government should make KiwiSaver compulsory as soon as people reached working age - a view shared by Opposition parties. He predicted the scheme would eventually replace New Zealand Superannuation.
Contributions should also be upped to a minimum of 10 per cent, with a possible 70-30 split between employees and employers, compared with the current split of 3 per cent from the employee and 3 per cent from the employer, he said.
Employee and employer contributions increased from 2 per cent respectively on April 1.
Mr Carney said employers should take a similar approach to the United States, where companies arrange financial advisers to meet workers twice a year to discuss their pension plan, or hold seminars educating people.
"Companies need to be getting behind having authorised financial advisers linked to their companies," he said.
"At the moment it's, 'We'll get you into KiwiSaver, don't worry about that.' And it just stops there. But if they say, 'No, we'll also marry you up with an adviser and he or she knows what he's doing.' They'll get the right type of fund."
Many people were put on to a default scheme through their employer, but it was often the wrong fit for their age and situation. "The Government should be pushing it too ... They [savers] need to be getting the right advice," Mr Carney said.
"I'd have to say 99 per cent of [clients] are on the wrong scheme ... Yes, you should be in KiwiSaver full stop, even if they're on the wrong scheme, but you get in the situation where a lot of people don't even know who their KiwiSaver provider is, they don't know how much is in there, and they don't know what kind of scheme it is."
Someone who wasn't planning to access their KiwiSaver until after retirement should not have their money tied up in short-term investments like cash and bonds.
"They should be all in the sharemarkets," Mr Carney said. "Yes, that's the most aggressive, volatile asset out there, but you've got time to ride out the ups and downs in those markets. They do better than any other market, but they are the most volatile."
But if someone was planning to take the money out for their first home within the next five years, they would not want to have their money tied up in a sharemarket scheme as "it could crash just before you're about to take your money out".
He recommended those aged over 65 and able to access their retirement fund withdraw enough to live on for about two years and split the rest over various portfolios.
The Federation of Family Budgeting Services chief executive Raewyn Fox said that of the 55,000 families the service saw a year, KiwiSaver was the only savings many had.
"We're teaching people the benefit of saving both in the long term and the short term, so saving a little bit painlessly out of your income each week towards your retirement.
"They suddenly see the amount building up and say, 'Oh, there's suddenly thousands of dollars in there and that was quite painless.' That's a really good learning exercise on the benefits of savings and how it adds up."
For most clients, KiwiSaver was their biggest or only asset.
Ms Fox said the funds can be accessed - minus Government contributions - if hardship was proved, which was often dangerous.
"Often they hit the wall and they're desperate for some money and it's quite often just smallish amounts that people need to bail themselves out, just a couple of thousand.
"We sometimes get quite sad when you see people and it's actually their only asset, it's the only opportunity they'll ever have to be a bit better off in the future when they're older. And basically they're giving away that opportunity."
A spokesman for the Commission for Financial Literacy and Retirement Income said a financial adviser or a KiwiSaver provider is made available to people once they reach 65 to discuss how they can best manage the lump sum to provide them with income during retirement.
"But more broadly we need a conversation around decumulation and the role of annuities as KiwiSaver matures and balances grow."
Overhaul needed
Financial adviser Daniel Carney on how he thinks KiwiSaver should change:
*KiwiSaver needs to be compulsory as soon as people reach working age.
*Minimum contributions need to be increased to a total of 10 per cent, with a possible 70-30 split between employees and employers, compared with the current 6 per cent, 50-50 split.
*Employers need to take a similar approach to the US where companies arrange financial advisers to meet workers twice a year to discuss their pension plan, or hold seminars educating people.
*Most people are not on the right scheme for their circumstances, after having been put on a default scheme by their employer.
