KiwiSaver cut, Best Start means-tested, $6.6b for business. Nicola Willis’ Budget aims for growth but warns of slow wages and high unemployment. Video \ Mark Mitchell
The Government is halving the maximum contribution it will pay into your KiwiSaver account, and it will be means-tested.
This will save the Government about $3 billion over four years.
Workers and employers will pay more. The default contribution will rise from 3% to 3.5% from April next year, and to 4% from April 2028.
You have until the end of June this year to get a $521.42 top-up from the Government into your KiwiSaver account. From July, the maximum subsidy will be halved and means-tested.
Doing this will save the Government $3 billion over four years, most of it from halving the government subsidy, which has been redirected to education, health and law and order.
The Government is also upping the default contributions for workers and employers, meaning they will forgo money today for bigger KiwiSaver accounts tomorrow (and decades into the future). This is hoped to be increasingly invested in New Zealand assets.
The current default KiwiSaver payment is 3% of your income, which is matched by your employer. This will rise to 3.5% from next April, and to 4% from April 2028.
This means most workers’ retirement savings at age 65 will swell by between 21% and 28% – after 40 years of working – compared with the current scheme, according to Inland Revenue Department (IRD) modelling. This also assumes a bigger withdrawal (up 9% to 15%) to buy a first home at age 30; 42,000 people withdrew from their KiwiSaver for a first-home purchase in the past year.
Workers can apply to the IRD to stay at 3% if they feel unable to afford an increase, which can lead to a temporary reprieve of one year (after which you can apply again).
As you and your employer pay more, the Government pays less. At present, for every additional dollar deposited into KiwiSaver each year the Government adds an extra 50 cents, up to a maximum of $521.42 a year.
This will be halved to 25c per dollar, meaning you’ll still have to deposit an additional $1042.84 into your KiwiSaver to get the maximum subsidy, but it will shrink to $260.72 a year.
And if you earn more than $180,000 a year (about 3.4% of workers), you won’t get any subsidy.
These changes come into effect in July, so to gain the $521.42 subsidy for the current year regardless of your income level, you’ll need to top up your KiwiSaver by 1042.84 by the end of this June.
Finance Minister Nicola Willis framed these changes – including extending the scheme to those aged 16 and 17 – as improving the scheme while making it “more fiscally sustainable”.
“An increase in KiwiSaver balances will grow the pool of funds available for investment in New Zealand,” Willis said.
Minister of Finance Nicola Willis has delivered her second Budget. Photo / Marty Melville.
Retirement Commissioner Jane Wrightson welcomed the changes, but hoped employers wouldn’t take their higher contributions out of their workers’ wages.
“We’re pleased to see the Government take on board some of the key recommendations we made in 2024 (higher default contributions and extending the scheme to those aged 16 and 17).
“We’d also recommended employer contributions for those over 65, but unfortunately the latter has been excluded from these latest changes.”
She added that shrinking the government subsidy will hit “low-income earners, Māori, women, and the self-employed the hardest”.
Labour leader Chris Hipkins said halving the maximum subsidy will deprive an 18-year-old signing up to KiwiSaver today of $66,000 in retirement savings.
Extending the scheme to 16- and 17-year-olds is estimated to cost the Government $29.3 million over four years. Those employing 16- and 17-year-olds will have to match their young workers’ KiwiSaver contributions from April next year.
As of March last year, there were 3.3 million KiwiSaver members – including 89% of those aged 18 to 64 – with a total of $111.8b in funds under management, and an average balance of $33,514 per member.
kiwisaver stats
How much will retirement savings swell?
IRD modelling compared scenarios of the current scheme with those of the incoming one.
The first scenario is a worker on $60,000 a year from age 25, who withdraws their savings at age 30 to buy a first home, and has a kid at age 28 and again at age 31 with a year of parental leave.
Under the current scheme, the withdrawal to buy a first home would be $15,805, and the KiwiSaver balance at age 65 would be a shade under $400,000. The higher contributions (meaning less disposable income for them in the interim) would increase the house-buying withdrawal by 9%, and the total savings at age 65 by 26% (to a shade over $500,000).
Someone earning $30,000 a year from age 25 would have their withdrawal for a first house (at age 30) increase by 9%, and their total savings at age 65 rise by 21%.
Those increases for someone on $100,000 a year from age 25 would be 15% and 28%, respectively.
Derek Cheng is a senior journalist who started at the Herald in 2004. He has worked several stints in the press gallery team and is a former deputy political editor.
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.
