Nicola Willis takes knife to $2.4 billion KiwiSaver subsidies

Friday, 23 May 2025

The minimum contribution rate for KiwiSavers will rise from 3% to 4%.

The Government has taken the knife to taxpayer-funded government contributions to KiwiSaver in the name of saving money; $2.4 billion in the coming four years.

But it paired the cuts with a planned increase to the minimum KiwiSaver contribution rate to lift it from 3% of workers’ before-tax salaries to 4% by April 2028, with employer contributions also rising from 3% to 4%.

KiwiSaver experts believe the increased contribution from workers’ and their employers’ would still leave most savers with larger retirement nest eggs at age 65 despite the reduction in government subsidies.

But the move was slammed by Labour leader Chris Hipkins, who said the cuts would leave an 18-year-old $66,000 “worse off in their retirement”, and someone aged 30 around $30,000 worse off.

“Dressing that up by saying you can save more of your own money to compensate for the fact that the Government’s just cut KiwiSaver isn’t going to wash,” Hipkins said.

Retirement commissioner Jane Wrightson said 80% of KiwiSavers would benefit from the Government’s changes, but would have liked to have seen some of the money “saved” by cutting the subsidies redirected to boost the KiwiSaver accounts of people on lower incomes.

Wrightson said: “4% plus 4% is exactly what we recommended in the last review. It’s neither over-saving, nor under-saving”.

How the KiwiSaver scheme has changed over the years.

That said, some KiwiSaver providers and advocates would like to see contribution rates move even further, and closer to Australia’s 12% contribution rate.

Each year, depending on how much a person saved into KiwiSaver, the government has contributed up to a maximum of $541.43, but that would now be cut to $260.72 from July 2025.

That would save the Government $580 million in Kiwisaver government contributions in the 2025/25 fiscal year, rising to $649m in 2028/29.

Finance Minister Nicola Willis said that would make KiwiSaver more sustainable, the same argument made in 2009, 2011, and 2015 when previous National governments cut government subsidies to KiwiSaver.

Meanwhile, those earning salaries of over $180,000-a-year will lose their government contribution entirely.

Sam Stubbs, chief executive of Simplicity KiwiSaver, said the cuts were the latest in a long line of moves by National to chip away at incentives to save into KiwiSaver.

Finance Minister Nicola Willis is cutting taxpayer subsidies to KiwiSaver. It’s a signature move for National finance ministers.

In 2009, a National government cut the minimum contribution from 4% to 2%, abolished the member fee subsidy of $40 per saver, and ended the KiwiSaver employer tax credit saying it would make KiwiSaver “more affordable for members, employers and taxpayers”,

In 2011, a National government cut the government contribution from a maximum of $1040 a year to $521. But the $541 government contribution was not indexed to inflation, and the Reserve Bank’s inflation calculator shows a basket of goods and services costing $541 in 2011 would cost around $717 today.

In 2015, a National government cut the $1000 kickstarter for new KiwiSaver members.

In his speech on the Budget, Hipkins contrasted “choosing austerity and cuts” in Budget to committing to spend hundreds of millions last year to restore tax subsidies to landlords.

Personal finance author Martin Hawes says the more governments meddle with Kiwisaver, teh more they risk confusing the public.

Financial expert Martin Hawes described Willis’ plan to lift contributions to 4% plus 4% as a good move, but said: “I think we will still need to be pushing that up over time as we can afford it.”

However, he said while higher contributions would serve salaried people well, the Government’s cut to the government contribution was a negative for the self-employed.

Self-employed people, and business owners, generally saved into KiwiSaver by making voluntary contributions. Reducing the incentive to do that to just $260.72 would reduce the incentive for them to save, Hawes said.

Financial Services Council chief executive Kirk Hope says that lifting the minimum contribution rate to 4% from an employee’s gross salary, and 4% matching contribution from their employers, is a good move.

“The group that will be effected worst are the self-employed, and small business owners,” Hawes said. “There’s little in KiwiSaver for them now.”

“There’s a huge number of people who don’t have salaries, and they are managing lumpy incomes,’ he said. ”It’s very difficult from a cashflow point of view for them. KiwiSaver will go to the back of the queue.“

Kirk Hope, chief executive of the Financial Services Council, which represents KiwiSaver providers, said: “Overall, I think it’s a step forward in terms of upping the contributions, which is something that we have known has needed to happen for some period of time.”

He said given the state of the government’s finances, he was not surprised at the cuts to government contributions.

Murray Harris, head of KiwiSaver at Milford Asset Management says New Zealanders have one of the lowest savings rates in the developed world.

Hawes feared the higher contribution rates would scare some people from saving into KiwiSaver at all, though Willis said workers would be able to temporarily opt down to a 3% contribution rate, if they chose.

Murray Harris, head of KiwiSaver at Milford Asset Management, said the Government had sent a clear signal that people needed to contribute more to KiwiSaver.

“We know there is a large gap between what New Zealand superannuation provides, and what people need to have a comfortable retirement,” he said.

He said a 35-year-old on the average wage with an average KiwiSaver balance would have an extra $50,000 or so saved by the time they reached 65 as a result of the changes Willis had flagged.

“We have got one of the lowest savings rates in the OECD,” Harris said.