KiwiSaver budget changes – how is everyone feeling about it?

May 2025

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Mosaic

The Government announced material changes to KiwiSaver in yesterday’s budget announcement.

Here is a quick summary¹ of how the changes will hit the market:

1 July 2025

Government contribution changes

Reduced from 50c to 25c per member contribution, or a max of $521.43 to $260.72 per year.
Threshold for eligibility lowered from 18 to 16 years old.
New income threshold where anyone earning over $180,000 is not eligible.

Important to note this won’t impact the current government contribution for the period ending 30 June 2025 (which typically get paid around mid to late July).

1 April 2026

Employee and employer contributions

Default employee and employer increases from 3% to 3.5%. Noting people will be able to opt to stay at 3% for 12 months (which can then be renewed indefinitely²).
Threshold for mandatory employer contribution rates lowered from 18 to 16 years old.

1 April 2028

Employee and employer contributions

Default employee and employer increases from 3.5% to 4%. Noting people will be able to opt to stay at 3% for 12 months (which can then be renewed indefinitely).

Our take is that there will be a real mix of emotions across the various parties involved in KiwiSaver. So, let’s step through them:

Members

Education for members or prospective members about how the benefits and trade-offs of contributing to KiwiSaver works from a member’s perspective is an ongoing challenge. These changes will add to the complexity, so let's step through them in parts (assuming all the parties are fully informed and engaged):

16–18 year olds – for those young adults who are financially engaged, this is great news. Employers will now have to contribute (some already will be), and young employees likely get the upside of those $260.72 government contributions. Parents will also be eyeing those government contributions on their young adult children’s behalf if they can afford the contributions.
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Employees (not on total remuneration packages) – ~1.17m Members³ across the board will be looking at 1% less take-home pay as their contributions lift from 3% to 4%. Members with tight budgets could find this problematic. For those whose employers contribute in addition to their salary, they will get 1% more (pre-tax of 10.5% to 39%, depending on their income⁴) from their employer. None of them will be chuffed with the government paring back the government contributions. They might be particularly upset if they look at the government contribution in isolation with compounding returns. That said, the long-term benefits will likely be to their benefit with an overall net increase in contributions and balances.
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Employees (on total remuneration packages, which are estimated to be 25%-45% of employers⁵) – their take-home pay will take the full hit of the employee and employer contributions. For those on over $180k (~95k members in total, of which a chunk will be on total remuneration contracts⁶), the question will be, “Should I keep contributing to KiwiSaver or lob it in a managed fund that I can access whenever I like or use it to reduce some debt?” This is a valid consideration going forward since high income earning employees on total remuneration packages will not be eligible for the government contribution and will receive a double whack to their take-home pay. However, if any person on a total remuneration package (regardless of income) see KiwiSaver as forced or disciplined saving/investing, and they can afford the extra 2% then KiwiSaver may continue to be an appealing proposition for them.
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Non-employees and non-contributors (~39% of members⁷) – bad news really. Their incentive to continue contributing to KiwiSaver has been cut in half or removed completely. This is a good chunk of New Zealanders that extends from the self-employed to those people not in paid employment. Those not contributing at all will be relatively indifferent, except the barriers or incentives to get contributing didn’t swing in their favour.‍

Employers

‍Those with total remuneration packages will be indifferent, but those putting their contributions on top will have to redo budgets with a 1% increase in staff costs on the horizon. This might come out of margins, be passed on to their customers, or suppress what has been provisioned for salary/wage increases. Strategically, employers may opt for a progressive move to total remuneration packages that see employees swallow the KiwiSaver costs without threatening the bottom line or customer loyalty.

KiwiSaver providers

They will be looking at all their collateral and tools going… “jeepers”. The reality is that this adds complexity and will hit all aspects of the value chain. It will require much thought and effort to embed and support across the next few years and beyond. They will be at the coal face to ensure their members are engaged and educated on the changes as they roll out progressively and into the future. This won’t be a one-time communication job, but it will require ongoing reinforcement to update their members' understanding of KiwiSaver, which they have worked on for over 15 years.

Naturally, you might be thinking, “didn’t they just lock in a massive increase in inflow through employee and employer contributions?”. The answer is not quite. The contribution outcomes will differ based on member demographics, employment terms, and financial capacity. Some people may respond by pulling back contributions or stopping contributions altogether as incentives diminish, or to respond to household budget constraints.

Government

Implementing these changes will require a bunch of work in systems, processes and collateral. Those in that space are probably going to be scrambling as they juggle their other priorities. The KiwiSaver system is a relatively well-oiled/integrated machine from an administration perspective, and changes to the system aren’t always straightforward. In terms of the books, this is good for the government as the cost of contributions is cut in half (~$1b based on Inland Revenue’s KiwiSaver statistics) and they pick up extra employer superannuation contribution tax, care of the increase in employer contributions. In terms of responding to the call to grow contribution rates, they have responded, sort of…

Our overall take

Ultimately, we need to be thinking about the purpose of KiwiSaver, which to quote the KiwiSaver Act is to:

“encourage a long-term savings habit and asset accumulation by individuals who are not in a position to enjoy standards of living in retirement similar to those in pre-retirement”

With that backdrop, it is two steps forward and one step back. The current contribution rates have been well published as too low to bridge the gap between working life and retirement. However, the other part of the Act’s purpose is to encourage savings, and another knock to the government contribution won’t be beneficial. The move will knock some people’s confidence in the stability and security of KiwiSaver into the future, with some seeing a threat to their savings through government intervention.

That said, these KiwiSaver settings are only a part of the puzzle, which also relies on it being appealing and well understood by New Zealanders. It remains a relatively low cost and friction free way for people to invest for the long term. It is well supported across the ecosystem, with member knowledge and capability continually improving. The more that people are financially equipped and literate to capitalise on KiwiSaver will be a big contributor to achieving the other half of the purpose of KiwiSaver:

“to increase individuals’ well-being and financial independence, particularly in retirement, and to provide retirement benefits”

The size and coverage of KiwiSaver will always make it area for the government of the time to tinker. We would encourage any of the inevitable future changes, after the current raft, to stay focused on the purpose of KiwiSaver, and remember that the confidence of the members/New Zealanders that it is secure and stable is critical to driving engagement and support of what has been a New Zealand success story.