From April 1, the default KiwiSaver contribution increases from 3% to 3.5% for both employees and employers. Photo / 123rf
If you notice your pay packet feels a little lighter from next month, it’s likely a result of incoming changes to KiwiSaver.
From April 1, the default KiwiSaver contribution rate will increase from 3% to 3.5% – a phased move which will take the default rate to 4% in 2028.
While the changes may feel like a pay haircut for some, they’re intended to create higher savings in retirement.
For a person earning $70,000, a 3% contribution rate means you’re currently paying $2100 a year, or about $40.38 a week, into your KiwiSaver.
But from April 1, this will increase to $2450 a year, or about $47.11 a week.
While the extra $7 a week might not seem like much at first glance, the backdrop of lingering cost-of-living pressures and rising costs elsewhere could leave some people financially strained.
Banks have already begun hiking mortgage rates – though many home owners will still be relishing the lower rates of the past 12 months – as the path of the Official Cash Rate appears to be headed for an upward trajectory.
Inflation is also back up, having risen from 2.2% in the September 2024 quarter to 3.1% in the December 2025.
The threat of a prolonged conflict in the Middle East could have further negative impacts on inflation, while motorists are already feeling the pain at the pump from higher oil prices.
Meanwhile, food prices had the biggest monthly increase in January in four years, rising 2.5%. On an annual basis, food prices are up 4.6%.
But much of this is also temporary too.
The impact of increased KiwiSaver contributions, along with compounding interest, could see retirees with tens of thousands of dollars more in their back pocket.
Analysis from the Retirement Commission last year found that for a 35-year-old on an average salary of $80,000, the change in contribution from 3% to 4% could result in a 25% higher KiwiSaver retirement balance at age 65.
And the increased savings will likely be needed too when retirement comes for many, with Massey University’s retirement expenditure guidelines for 2025 showing pensioners are currently spending more each week than they receive in New Zealand Superannuation.
The findings found a single person living a “no frills” lifestyle in metro centres was $166.92 a week short and $42.33 a week short in provincial areas.
For single people with a “choices” lifestyle, they have to top up by $252.20 a week in the metro centres and by $233.47 in the provincial areas.
John Berry, CEO and co-founder of Pathfinder KiwiSaver, said the upcoming changes to KiwiSaver contributions are a step in the right direction.
“They help move us incrementally towards better retirement outcomes for Kiwis,” he said.
But Berry said the real concern is the lack of a long-term map.
“We need a plan to continue incrementally increasing contribution rates, and announce the timing well in advance.
“This will result in higher savings for decades to come, ensuring the next generation of Kiwis can feel confident about their financial futures and retirement outcomes.”
He said any long-term plan needs to have cross-party political support.
“Tinkering or flip-flopping on rules risks undermining credibility and trust in KiwiSaver.”
However, Berry acknowledged that many Kiwis were finding it tough right now.
”For many, it’s hard to imagine increasing contributions in a cost-of-living crisis, and it’s hard for businesses with tightening margins.
“The fact that the current changes have a temporary opt-out should help with planning and affordability.”
He said the Government’s decision that 16 and 17-year-olds will now qualify for employer KiwiSaver contributions will also encourage stronger saving habits for younger people.
“They have been paying PAYE tax, so it seems only fair they receive KiwiSaver benefits.”
What changes are happening?
From April 1, the default KiwiSaver contribution for both employees and employers will rise from 3% to 3.5%.
This will then increase again to 4% from April 1, 2028.
Why is the Government increasing the default contribution rate?
Announced as part of Budget 2025, Finance Minister Nicola Willis says increasing the contribution rate to 4% will “lift savings and provide greater security for Kiwis”.
Willis says “the KiwiSaver balances of employees contributing at the new 4% default rate will grow faster than they do at the current 3% default rate, providing a larger balance at age 65 and a larger deposit when people use KiwiSaver to buy their first home”.
What do I need to do?
Nothing. The change happens automatically.
What if I can’t afford the increase in contributions?
If you can’t afford the new rate or wish to save in other ways, you can apply for a temporary reduction rate.
This will allow you to continue contributing at a rate of 3%. However, if you do so, your employer can also choose to drop their contribution to 3%.
A temporary rate reduction can be applied for through the Inland Revenue Department’s myIR for a period of three months to one year. Once approved, you will need to submit it to your employer.
You can reapply as often as you need, but must resubmit the application or you will default back to the 3.5% rate. When moving back to the 3.5% rate, Inland Revenue will notify your employer of the change.
You can apply for a temporary rate reduction at any time and you do not need to wait for the period to end if you wish to increase your contribution again. Inland Revenue will notify your employer ahead of time when a temporary rate reduction period is ending.
Cameron Smith is an Auckland-based business reporter. He joined the Herald in 2015 and has covered business and sports. He reports on topics such as retail, small business, the workplace and macroeconomics.