The improvements to KiwiSaver that are really needed

Saturday, 6 December 2025

Janine Starks is the author of www.moneytips.nz and can be contacted at moneytips.nz@gmail.com.

OPINION: The headline-grabbing KiwiSaver announcement last week made ears perk up around the country – 12% of our wages will go into KiwiSaver, with a slow build up to 2032.

This new policy from the National Party was an attempt to keep up with the Joneses. The Aussies invest 12% (paid by employers). It was also trying to compete with NZ First’s 10% announcement, with matching tax cuts that fully subsidise the rise.

Quite frankly, it’s becoming a pissing competition with no substance.

I’d encourage politicians to jump down off their headlines and start looking at the areas that add to financial fairness. Don’t get me wrong, those juicy percentages are very welcome, but they will only work if we bash through the real problems with some honesty.

Here’s a list that I believe addresses fairness.

1. Abolish “total remuneration packages” for those earning under $180,000.

This is a slippery loophole that needs closing. Employers are gaming the system and keeping salaries lower by embedding their own contributions into our gross salary. It results in many people opting-out of KiwiSaver and taking the cash. Total remuneration packages de-couple the dollar-for-dollar matching payment from employers and remove the only hook we have to get employees excited about KiwiSaver.

We need one consistent system where employers advertise KiwiSaver on top of a salary. It makes jobs more comparable and negotiations fairer.

2. Add in an early retirement option for all. Australians get full access to their money at age 60, the Brits get 25% at age 55. Kiwis deserve something similar, so we can make choices like a sabbatical, starting a lifestyle business or early retirement.

3. Payments above the default rate should be in side-cars to make the money accessible and liquid. Importantly, this would avoid mis-selling a scheme that has no tax advantages and no justifiable reason for locking those funds up. (Whereas the default payments come with dollar-for-dollar matching.)

4. Change the scheme to 12% of gross income. It’s a quirk of the system, but a 6% employer contribution plus a 6% employee contribution is not 12%. Our payment is calculated on gross salary but paid out of net wages. It means a 30% taxpayer is actually forking out 8.57% of gross income to make the 6% payment. The employer puts in 6% of gross income, but gets taxed so we end up with 4.2% from them. On a gross basis, we’re paying 14.57%, not 12%, and that feels pretty steep.

5. Pull in the self-employed. There is no incentive for them to invest. Small businesses are part of our DNA, so if there was ever a time for a tax incentive, these workers deserve it. Paying tax at a flat rate of 20% with a cap on their contributions would pull them in.

6. Pull in lower income workers who currently opt out. Make employer contributions compulsory for those earning under $65,000 (full or part-time). Even if they opt out, every low earner should be accruing their employer’s payment. Reduce employer tax to zero on the first two tax bands, so more is invested. Reduce PIE tax (within the fund) to zero for the first tax band.

7. Keep in those on parental leave and late retirees. Employer and IRD contributions should continue to be paid regardless of whether a parent can afford to keep saving. There’s no justification for excluding over-65s.

8. Roll out a fee-reduction programme. As contributions rise, fund managers will double their revenue. We need managers to pass fee tests against international benchmarks. We need to ban performance fees from KiwiSaver and increase competition by forcing all managers to open up to multi-fund platforms.

The Kiwi-Aussie comparison

Broadly, KiwiSaver is a vastly inferior system to the Australian work-place saving scheme, because we get hammered with tax. To offset that, our government super scheme is vastly superior, because rich or poor, we get it without means-testing.

Most Kiwis have no idea of the value of our superannuation. If it was taken away from us, we’d need to save an additional $1 million per couple and $700,000 as a single, in KiwiSaver, to replace the annual inflation adjusted income we get in retirement; $43,074 net for a couple and $27,998 net for a single person. That’s calculated based on a 4% withdrawal that the New Zealand Society of Actuaries say is fairly safe to avoid running out of money.

The Australian age pension is only paid in full when assets are less than $552,000 for a couple or $368,000 for a single, excluding their main home. Given work-place saving started back in 1992, swathes of Australians don’t qualify for the full government payment in retirement.

But here’s where the Aussies fight back. They trounce us on tax:

On the way in: gross contributions are taxed at a flat 15% in Australia, compared to our marginal rate of 10.5 to 39%.

In the middle: investment returns are taxed at 15% in Australia and between 10.5% and 28% in New Zealand depending on our earnings. Unlike Australia, we suffer no capital gains tax on most local shares including Aussie companies, but international shares are taxed.

On the way out: Kiwis pay no tax to withdraw money and neither do Australians, but they get access at age 60, whereas we wait until 65.

In retirement: Aussies suddenly get all their gains, interest and dividends tax-free, within a fund, once they’ve given up work. Kiwis continue to be taxed on our returns right through to our death. That’s decades of tax-free returns across the ditch.

Readers should always seek specific independent financial advice appropriate to their own circumstances.