Don’t decline your April pay rise: The $2400 mistake a million Kiwis could make
Tuesday, 20 January 2026
In one of Aesop’s many fables, the North Wind and the Sun challenge each other to a contest to see who can get a man to remove his cloak. The North Wind howls and howls, pulling at the fabric, but all it does is encourage the man to pull the cloak tighter in a bid to shelter himself from the wind as it whips against his body. The Sun then steps in and offers only the embrace of its warm rays, effectively coaxing the man out of his coat.
The lesson in all this is that kindness and generosity are more persuasive than attempts to force someone into submission. It’s the old debate about the carrot and the stick, played out in celestial scale.
And while it’s a nice story, the lesson underpinning it isn’t universally applicable.
For a modern case in point, look no further than the example of KiwiSaver. Despite the promise that employers will match your contributions up to 3 per cent, a third of workers between the ages of 18 and 65 are not contributing to KiwiSaver.
The latest data from the Financial Markets Authority shows more than a million members in that key working cohort are not contributing anything.
Admittedly, 111,000 of those non-contributing members are on a savings suspension due to financial pressures, but this still leaves an enormous gap in terms of those who could be contributing.
The loss equation will start to become even bigger if you consider that employer contributions are set to rise to 3.5% in April this year as part of the coalition Government’s plan to steadily increase contribution rates in the coming years.
If you’re a non-contributing member, you’ll essentially be turning down a 3.5% raise the moment the law change comes into effect.
MoneyHub’s latest survey on salaries shows that the median salary currently sits at around $69,800, which means non-contributing members are on average turning down as much as $2,443 per annum (before you even take into account the Government subsidy of $260 for those who contribute at least $1042 per year).
With National leader Christopher Luxon expressing the intention to continue increasing employer contribution rates to 6% by 2032, the amount of money being left on the table will only increase over time.
The big move
This issue doesn’t only impact non-contributing members. It also has repercussions for those who are contributing the minimum of 3%.
Emma-Jayne Liddy, the general manager of wealth at ASB, tells me KiwiSavers should respond to the changes coming in April by increasing their contributions – especially if they’re in that lower band.
Even if you increase your contributions by half percent, you’ll effectively be putting an additional percent (with the employer contribution) toward your retirement every pay cheque.
“Allowing that to compound over the long-term will really pay off,' she says.
Liddy says there’s also an opportunity here for employers to step in.
“We know one of the best things we can do for New Zealanders’ financial wellbeing is to encourage saving for retirement, and KiwiSaver is the main way New Zealanders do this,” she says.
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Internally, ASB has increased its employer to contribution rate for staff to 4% and continues to contribute even if permanent staff take a temporary pause in contributions.
“We communicate with our people and our customers regularly to encourage them to contribute where possible, or remind them of key milestones, as every little bit adds up, and compounds over time.”
How much can you afford?
Even though our KiwiSaver employer contributions are rising to 3.5%, we’re still some way off the 12% contributions we see in Australia.
John Berry, the chief executive of Pathfinder KiwiSaver, says we need to take this opportunity to mentally assess how much more we could be contributing without putting undue financial pressure on ourselves.
Berry says so much of this comes down to delaying instant gratification. If you can do that the rewards accumulate and grow exponentially over time.
'If you're a 30-year-old and were to forego one coffee a week that would be an extra $6 a week, Berry says.
“If you put it in your KiwiSaver instead, at 65, you'd have saved an extra $16,000… For people who can afford $6 a week and don't notice that, then challenge yourself: what if you multiply that by 2 or by 5?”
The point he makes here is that minimum shouldn’t be the only target. It should be based on what you’d like your retirement to look like one day.
This issue is particularly relevant at a time when so many of us are set to roll off higher mortgage rates and refix on lower rates in the early months of the year.
Kiwis will have access to extra money, but they will have learned the resilience that comes with living off less over the last few years. Kiwis who feel that they’ve been financially stable over the last few years of high mortgage rates, now have the choice to either keep their mortgage repayments the same or invest more into their retirement funds.
With mortgage rates rolling over and employer contributions rising, Berry feels 2026 presents a good opportunity for Kiwis to assess where their money is going and what their longer plans might look like.
That requires making deliberate investing decisions and then giving them the time to compound over the coming decades.
Set and forget only works when…
This doesn’t mean everyone needs to step into their KiwiSaver account and start tinkering with things that don’t need to be changed.
“The best investing is usually hands-off,” says Kernel Wealth founder Dean Anderson.
“Whether it’s your personal portfolio or your KiwiSaver, you shouldn't be making changes unless your life circumstances have changed.”
However, there is an important caveat that comes with this.
“‘Set and forget’ only works if you’ve actually done the ‘set’ part correctly,” Anderson says.
“It relies on you taking a moment to define your goals and build a plan. With the New Year (and the inevitable wet summer days) upon us, now is the perfect time to check in on what is likely your second-biggest asset [after your house].”
What Anderson is recommending here is using KiwiSaver as a tool rather than just a retirement fund.
“It is the ultimate teacher for anyone looking to build long-term wealth,” he says.
“It provides a live, successful demonstration of the core behaviours that drive the majority of investment outcomes, specifically the power of regular contributions, not timing the market, the benefit of diversification, and the discipline of keeping your hands off.”
These enormous benefits are part of the reason why more influential voices are calling for KiwiSaver to become compulsory.
Having a voluntary system has led to more than a million people not contributing – an issue that will only become more concerning over time.
It’s becoming increasingly apparent that the warmth of good incentives isn’t enough to draw everyone in. We might also need the cold wind of compulsion to nudge us in the right direction.