KiwiSaver is failing 30% of working age people - here’s how to fix it

Thursday, 11 September 2025

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KiwiSaver manager Rupert Carlyon from Kōura Wealth says the single quickest fix for flagging KiwiSaver contribution rates would be to end the “total remuneration” loophole.

Carlyon was speaking at the Financial Services Council (FSC) conference on Wednesday in Auckland after data was released showing 30% of people of working age with KiwiSaver accounts were not saving anything.

That growing Kiwisaver gap was driving fears of a polarised KiwiSaver population, with many prospering through the savings scheme, but others being left out entirely.

When KiwiSaver was created by a Labour government in 2006, anyone who chose to join would get employer contributions.

But when National took power in 2008, it opened what Labour called a “loophole” that allowed employers to strike individual agreements with employees under which they could deduct their employer contributions from those employees’ salaries.

The name given to this was “total remuneration”, and it was supposed to be just for those at the top end of the executive pay scale, but it has ended up being written into the contracts of some of the lowest-paid workers.

“The one big thing, that would be the easiest change of all, which would make a humongous difference is total remuneration policies,” Carlyon said.

“That just has to go. That is probably the biggest driver of inequity of all in KiwiSaver,” he said.

The widespread use of total remuneration clauses, especially in inexperienced young people’s contracts, was having a massive effect, the conference heard.

Carlyon said 40% to 45% of all employees now had this in their contracts.

The total wealth in KiwiSaver accounts has now passed the $120 billion-mark, but there are growing concerns that KiwiSaver is making well-off people even wealthier, but leaving behind many lower-income people.

Earlier in the day, finance minister Nicola Willis told delegates National would be taking new KiwiSaver and NZ Super policies into the next election.

It looked likely that part of that would include a return to its earlier plan of gradually lifting the age at which people qualified for NZ Super to 67.

There was some unhappiness at the Government’s recent cuts to government contributions, which had weakened incentives for the likes of the self-employed to save into KiwiSaver at all.

That happened at the Budget in May, when Willis claimed that to make the KiwiSaver “sustainable” the state’s annual contribution had to be cut, halving the maximum government contribution a saver could get from $521 to $260.

“It actually means for most people, particularly now that we're down to $260 of government contribution, the incentive is close to zero,” Carlyon said.

A panel discussion also saw other KiwiSaver unfairness effects debated.

Because KiwiSaver is an investment scheme, the more people save into it, the more they benefit from compound interest.

That meant effects like the gender pay gap, and gaps in employments for things like unemployment and caring for young children, led to ever-widening wealth gaps.

Even the matching employer contributions formula exacerbated KiwiSaver inequalities.

Suggestions from delegates included employer contributions being capped, or levelled, so everybody got the same chipped into their accounts by their employers.

Carlyon also suggested that households be allowed to “stream” their contributions.

In the case of a household in which one only parent was working, half the contributions could be streamed into the KiwiSaver account of the non-worker.

Discussions on the conference floor also raised some of the equity issues that were growing in effect.

The Financial Markets Authority Te Mana Tatai Hokohoko paper published on Wednesday which revealed the 30% non-contribution rate also disclosed a second shocking figure - a record $400 million withdrawals for hardship.

People can get money released from KiwiSaver to help them meet essential spending when they fall into hardship, but that was emptying KiwiSaver accounts, leaving people facing an eventual retirement with small financial nest eggs.

Many delegates wanted to see KiwiSaver made compulsory, and the minimum contribution rate, including employer contributions, lifted to 10%, 12% or even higher.

Earlier this week, NZ First leader Winston Peters called for KiwiSaver contribution rates to rise to 10% of people’s before-tax salaries.

The FSC is the political lobbying association for insurers and KiwiSaver managers, and each year high-ranking politicians attend its conference. On Wednesday Willis, and deputy prime minister David Seymour spoke, and on Thursday Labour finance spokesperson Barbara Edmonds will make a speech.

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