Big changes are on the way for the KiwiSaver scheme as Finance Minister Nicola Willis says she wants to system to become “more fiscally sustainable” and better for those saving for retirement or a first home.
The changes were revealed earlier today as a significant part of Budget 2025 and heavily speculated about before the announcement.
Default employer and employee contribution rates will increase to 4% from April 2028. But rates will first rise to 3.5% from April next year in a “phased” approach.
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Meanwhile, the value of the government’s $521 KiwiSaver contribution is being halved, so that individuals receive a contribution of 25 cents per dollar of employee contribution, up to a maximum of only $260.72 a year. This change will apply from July 2025.
Additionally, there will now be means-testing on the government contribution with eligibility limited to people who earn under $180,000.
Some KiwiSaver benefits, such as employer and government contributions, will also now be extended to 16- and 17-year-olds.
In growth forecasts, Treasury has assumed the higher 4% contribution rates will be offset, by employers, through lower-than-otherwise wage increases.
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The Government’s changes are expected to save it $2.4 billion over four years or about $600 million annually on average. Extending eligibility to 16- and 17-year-olds is forecasted to cost $29 million over four years or about $7 million a year.
Most changes will be made automatically for KiwiSaver members.
Contribution rate change to be phased in
Willis said phasing in changes to default contribution rates “over a three-year period helps workers and employers plan ahead”.
“To lift savings and provide greater security for Kiwis, we’re raising the default rate of employee and matching employer KiwiSaver contributions from 3% to 4% of salary and wages, phased in over three years,” she said.
People using KiwiSaver will have the ability to opt down to the current 3% contribution rate temporarily, according to the Government.
“They may wish to do that, for example, if they feel they are unable to afford an increased contribution now or at a future stage. From February 1, 2026, KiwiSaver members will be able to apply to Inland Revenue to continue contributing at the rate of 3% if they choose.
“This 3% contribution rate will apply for up to 12 months, after which a member will default back to the higher rate, or they can apply for another temporary savings reduction.”
Govt KiwiSaver contributions slashed
Finance Minister Nicola Willis says she wants to system to become “more fiscally sustainable”. (Source: 1News)
Meanwhile, the Government’s existing scheme to match KiwiSaver contributions has been slashed in order to make the scheme more “sustainable”, Willis said.
She said there had been “layers of expensive government subsidies that proved unaffordable” since the scheme was first designed.
From July 1, the government contribution rate will be halved from 50 cents per dollar of contribution, up to a maximum of $521.43 a year, to 25 cents per dollar of contribution, up to a new maximum of $260.72. To receive the full government contribution a member will still need to contribute a minimum of $1042.86 each year.
Members will still be eligible to receive the maximum government contribution of $521.43 based on contributions made from July 1, 2024 to June 30, 2025.
Meanwhile, eligibility for receiving the government contribution at all has also been changed, with people earning over $180,000 no longer able to receive the incentive.
16-17yos to receive KiwiSaver matching
While age for auto-enrolment into KiwiSaver will remain at 18, soon people aged 16 and 17 will also be able to receive government and employer contributions. Approximately 57,400 young people aged 16-17 were KiwiSaver members when last measured in mid-2023.
From July 1, eligibility for the government contribution will be extended to those aged 16-17, assuming they contribute sufficient funds to their KiwiSaver account.
From April 1 next year, KiwiSaver members aged 16 to 17 will also become eligible for mandatory employer KiwiSaver contributions.
To receive employer contributions 16- and 17-year-olds in paid work will need to join KiwiSaver if they have not already and elect to make employee contributions.
Will first home withdrawals be affected?
The proposals in Budget 2025 will not affect the current settings governing KiwiSaver first home withdrawals.
However, according to the Government, the proposed increases in KiwiSaver contribution rates are “expected to increase KiwiSaver balances over time, making larger amounts available for members to withdraw to finance the purchase of a first home.”
Willis said of the announcements made at the Budget: “An increase in KiwiSaver balances will grow the pool of funds available for investment in New Zealand. The Reserve Bank estimates that about 40% of KiwiSaver funds under management are invested in New Zealand assets,” she said.
“The Government is working to reduce barriers that may stand in the way of KiwiSaver funds investing in a wider range of New Zealand businesses, assets and infrastructure.
“Most New Zealanders have already embraced KiwiSaver as a simple way of accumulating savings to supplement their income in retirement.
“The Budget’s KiwiSaver package is designed to encourage them to save more so they can look forward to greater levels of financial security.”
A calculator has been made available on Sorted for Kiwis to find out how the upcoming changes to KiwiSaver will impact them.