Wonky Box co-founder Angus Simms believes the Government’s changes to KiwiSaver contributions will “be a burden” on small businesses
Announced as part of Budget 2025, the Government is halving the contribution it makes to KiwiSaver members to a maximum of $261 a year and scrapping the contribution altogether for members who earn more than $180,000 a year.
Finance Minister Nicola Willis will instead push people to do more to save for their own retirements, lifting the default KiwiSaver contribution rate for both employees and employers from 3% to 3.5% from April next year, and 4% from April 2028.
The changes will also require employers to make contributions to 16 and 17-year-olds who save into the scheme, and extend the government contribution to this cohort.
Simms believes most people won’t think the changes will amount to much, but small businesses with 10 or more employees will “definitely feel that”.
“That’s very much a cash-flow thing as well. I haven’t actually put too much thought into that, but now that you mention it ... It is a bit of a burden,” Simms said.
Simms was more upbeat on the ability for businesses to deduct 20% of the cost of new assets.
“I guess for us, at least we know that we can apply and invest and continue to innovate with something like that 20% deduction. That does help, that will help us.
“Especially as we’re looking to do new products and create some automation and bring in some new packing technology.”
James Fuller, chief executive of small business accounting firm Hnry, said the reduction of the Government KiwiSaver contribution was a blow for sole traders and self-employed people.
“Sole traders will be hit the hardest, while salaried employees will see the minimum employer contribution rise to 4%. But, the Government has overlooked that 400,000 Kiwis don’t have an employer - this effectively punishes them.”
Fuller said the change showed the Government was out of touch with the modern Kiwi workforce.
Freelance graphic designer Ella Shepherd felt shocked and let down by the decision.
“As a freelancer, I contribute significantly more to my KiwiSaver than my employed friends because I know how important it is. If people are on the fence about it, I’m worried it will stop them from contributing,” she said.
Fuller said a survey of sole traders last year found only 28% had saved into KiwiSaver or superannuation - down from 40% the year before.
“I expect we’ll see that figure drop again following [yesterday’s] announcement.”
Financial expert Martin Hawes said the Budget had passed the burden of contributions from the Government to employers.
“It’s pretty neutral, but there’s a bit of courage there in asking employers to pay for what she’s [Nicola Willis] not going to pay any more,” Hawes said.
Hawes was supportive of the employee and employer contribution rate rising but said it could have gone further.
“I would have liked to have seen a commitment to keep moving it up.”
But Hawes said reducing the Government’s contribution to a maximum of $261 a year was poor form.
“I would argue that you need as few tweaks to KiwiSaver as possible, it’s a very long-term scheme.
“All we see is something being reduced.
“It’s very unsettling for a lot of people and they simply don’t remember the current settings and it becomes another excuse to not contribute.”
Hawes said while a family earning between $120,000 and $179,000 would likely be able to absorb any changes to their contributions, socioeconomically deprived communities, small businesses and the self-employed would be hit the hardest.
“It was the only incentive that they were getting. If the Government had simply left that alone and gradually over the next decade or so, it inflated away, then you could have got rid of the whole thing.
“When I think of the self-employed, they get very little but they have lots of demands on their money. They’re often so engrossed in their businesses that they don’t get their heads out of it and look at the big picture.”
Reactions to the Budget’s changes to KiwiSaver were mixed from investment managers and advocacy groups.
Retirement Commissioner Jane Wrightson was pleased to see a higher default contribution rate of 4% for employees and matched by their employers, and extending employer contributions to those aged 16 and 17.
However, she was critical about what it would mean for those who would not be able to benefit.
“The reduction in the government contribution will hit low-income earners, Māori, women, and the self-employed the hardest. I would at least have liked to see some of the savings from reducing government contributions be applied to serving those groups where we see the widest retirement savings gaps,” Wrightson said.
“We also hope employers respect the spirit of the changes and understand why they were necessary, passing the savings on to their staff rather than including them as part of total remuneration - which should be banned.”
The Financial Services Council welcomed the Government’s decision to increase the default KiwiSaver contribution rate to 4% by 2028, although suggested a combined contribution goal by 2037 of 10%.
The group also had concerns about the changes and their implications.
“A higher contribution rate is an important step toward ensuring that future retirees can maintain a standard of living consistent with their working years,” the group said.
“The Government’s 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.”
Fisher Funds chief executive Simon Power said the changes made by the Government were well signalled and that he understood the Government’s motivation to balance the books.
“It makes sense to increase default contribution rates and moving to 4% over three years is a good start. However, New Zealanders will understandably be wanting to know what comes next, over the medium term, to ensure a nest egg is available to them at retirement,” Power said.
“Closing that gap will need a clear, national plan for the future, which means a 10-year roadmap is needed to give New Zealanders certainty. Savers and employers need to know when and how contributions will change and be given the right guidance and education.”
Do you have questions about the Budget? Ask our experts - business editor at large Liam Dann, senior political correspondent Audrey Young and Wellington business editor Jenee Tibshraeny - in a Herald Premium online Q&A here at nzherald.co.nz at 9.30am, Friday, May 23.
Tom Raynel is a multimedia business journalist for the Herald, covering small business, retail and tourism.
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