KiwiSaver balances will get a boost in coming years with the government confirming speculation that increased contributions are on the way, although it’s paring back its own contribution to private savings.
Finance minister Nicola Willis unveiled plans for employees and employers to increase their respective contributions to KiwiSaver schemes to at least 4% of salary and wages, phasing it in over the next three years and bringing it in line with what architect Michael Cullen initially envisaged for the scheme 20 years ago.
The increased contributions will step up in two stages, rising to 3.5% from April 2026, and then 4% two years later. People can keep their contribution at 3% if they choose to.
Meanwhile, the government is cutting its own contribution in half for most people and dropping it entirely for high income earners with a gross salary of $180,000. From July of this year, the government’s current contribution of 50 cents for every dollar a member puts in – capped at $521.43 per year – will drop to 25 cents for every dollar, up to maximum of $260.72.
And the government contribution and employer-matching will be extended to working 16- and 17-year-olds.
“Putting these changes together, the KiwiSaver balances of employees contributing at the new 4% default rate will grow faster than they do at the current 3% default rate, providing a larger balance at age 65 and a larger deposit when people use KiwiSaver to buy their first home,” Willis said in a statement. “Most New Zealanders have already embraced KiwiSaver as a simple way of accumulating savings to supplement their income in retirement.”
Welcome news
The response to the changes were broadly positive, with providers welcoming the proposed increases in member and employer contributions to a combined 8% of someone’s salary by 2028, although they’d prefer to see that rise to 10%.
The Financial Services Council said the changes bring New Zealand closer to that goal, although cutting the government contribution may discourage enrolment in the scheme for some people, such as the self-employed.
“A higher contribution rate is an important step toward ensuring that future retirees can maintain a standard of living consistent with their working years,” it said in a statement. “A phased approach is crucial to ensure this is sustainable for workers and employers alike – employers and employees need time to adjust to higher contribution rates.”
Pie Funds chief executive Ana-Marie Lockyer welcomed the increased contributions rate and extension to younger teenagers, but said they still needed to go higher.
“A 10% combined contribution rate would help ensure a good standard of living in retirement, but we need to get there gradually,” Lockyer said. “I’m pleased to see the increases are phased and clearly communicated, so lower-income earners in particular aren’t discouraged from participating due to affordability concerns, and employees can plan ahead.”
And Lockyer also wants to see the extended government contribution to over-65s as well.
Ambitious for New Zealand
Booster chief executive Di Papadopoulos is even more ambitious, pointing to the 6% contributions by employees and employers across the Tasman which – based on a 38-year-old current KiwiSaver with $30,000 in a growth fund and an income of $80,000 – could generate an extra $220,000 of retirement savings by 65, rather than an extra $62,000 from the latest changes.
“So, it illustrates the power of how higher KiwiSaver contributions could deliver a much better retirement for people,” Papadopoulos said. “We know that the earlier people start a savings habit, the better.”
Pathfinder Asset Management chief executive John Berry also wants to see closer alignment with Australia, welcoming the increased contribution rates as a step in the right direction.
“We need to be moving incrementally towards the outcomes generated by our neighbours in Australia, which will soon see employer contributions at 12%,” Berry said. “This requires NZ to have a long-term plan beyond the next three years, driving further contribution rate increases and higher savings for decades to come.”
Not all rosy
Berry isn’t pleased with the government halving its contribution, saying the 50 cents in the dollar matcher is a meaningful incentive for low-income earners and non-earners.
“I’m concerned about the disproportionate impact this decision will have on low-income earners and the self-employed,” Berry said. “It is likely to be felt most by women. Over 60% of our members are women, and we know they’re already retiring with a savings deficit compared to men.”
Berry is on board with Retirement Commissioner Jane Wrightson’s concern that the halved government contribution will hit low-income earners, Māori, women, and the self-employed the hardest.
“It's a shame there are so few government incentives for a scheme that underpins private saving for retirement,” Wrightson said. “I would at least have liked to see some of the savings from reducing government contributions be applied to serving those groups where we see the widest retirement savings gaps.”
The Retirement Commission will explore the impact of the changes as part of its 2025 retirement income policies review.
Reporting by Paul McBeth. Image from Charlie Charoenwattana on Unsplash.
