Higher- and medium-income earners will benefit over the longer-term following government budget re-engineering of KiwiSaver last week, according to a Retirement Commission study, but the bottom 20 per cent could be worse-off.
The Retirement Commission (Te Ara Ahunga Ora) analysis found that halving of the annual government member tax credit to about $260 would disproportionately hit low-income earners and the self-employed.
“For self-employed people and those not currently in paid work, who only receive the government contribution and no employer contribution, the change will result in a decrease in their KiwiSaver retirement savings balance compared to what would have been expected if there was no change,” the Retirement Commission release says.
“In 2024 approximately 200,000 members received only a government contribution, including approximately 125,000 self-employed people.”
But the net impact of slowly ratcheting-up the minimum employer and employee contributions to 4 per cent apiece starting from the 2026/27 financial year could increase retirement age KiwiSaver accounts by about a quarter for those aged 35 and earning $80,000 per annum today.
Similarly, minimum-wage 16- to 17-year olds who now become eligible for matching employer KiwiSaver contributions and the reduced government tax credit would see an extra 25 per cent of savings aged 65 versus starting at the previous kick-off age of 18, the study found.
Jane Wrightson, Retirement Commissioner, said in the release: “This is great news for most KiwiSaver members but it’s clear further work needs to be done to consider how we can better support the other 20% who are missing out on savings, which includes low-income earners, the self-employed, and many women, Māori and Pacific Peoples.
“While we’re pleased to see the Government take on board the key recommendations we made in 2024 around increasing the default contribution rate of 4%, I would at least have liked to see some of the savings from reducing government contributions be applied to serving these groups where we see the widest retirement savings gaps.”
She said the amendments the budget handed down by Nicola Willis last week might also see more New Zealanders opting for a ‘total remuneration’ package that can bypass the KiwiSaver system.
Industry response has also been mainly positive about the KiwiSaver revamp with some caveats.
For instance, the Financial Services Council (FSC) notes while the 4+4 shift moves KiwiSaver closer to global peers the “decision to reduce its contribution could discourage enrolment in the scheme or a commitment to contributing during periods of low income, such as maternity leave, and particularly for the self employed.”
FSC chief, Kirk Hope, said the government could also have laid a path to reaching a 10 per cent KiwiSaver contribution goal.
Likewise, Murray Harris, Milford Asset Management KiwiSaver head, said an end goal of 5 per cent contributions from both employer and employee would be appropriate.
“We don’t need to be at 12 per cent like Australia will be from this July because NZ doesn’t have a means-tested pension,” Harris said.
He said the phased-in increase to the 8 per cent total, while welcome, only takes KiwiSaver back to where it started: the regime began with a 4 per cent member contribution rate with employer payments intended to reach the same level over time.
National-led governments scaled back both the employee rate and target employer contributions in 2009 during the global financial crisis.
Harris said planned seven-yearly reviews of KiwiSaver settings (as distinct from the default provider process) have also been missed for various reasons including COVID.
Nonetheless, he said even despite the “not ideal” reduction in the member tax credit, the net effect of the KiwiSaver reforms were “still positive”.
According to budget figures, the fiscal cost of the member tax credit will fall to $541 million in the 2025/26 financial year compared to just over $1 billion in the previous period: removing the annual freebie for those earning $180,000 or more will save the government $33 million.
The KiwiSaver incentive expense is expected to rise to almost $642 million by the 2028/29 year, official estimates show.
At the same time, total employer and employee contributions – that flow through Inland Revenue Department (IRD) systems – would increase to about $10.7 billion over the 2025/26 financial year compared to $9.9 billion in the prior period.
IRD-accounted KiwiSaver contributions are on track to reach $14 billion by the 2028/29 year, according to budget papers.