Detailed Changes to KiwiSaver in New Zealand Budget 2025

The 2025 New Zealand Budget introduces the most significant changes to KiwiSaver since its inception, aiming to make the scheme more fiscally sustainable while encouraging greater personal and employer contributions. The reforms affect contribution rates, government subsidies, eligibility, and the scheme’s long-term structure. Here is a comprehensive breakdown of the changes, their rationale, and what they mean for KiwiSaver members, employers, and the broader New Zealand economy.

1. Government Contribution Halved

What’s Changing:

• From 1 July 2025, the government’s annual contribution to KiwiSaver will be halved from 50 cents to 25 cents for every dollar contributed by a member.
• The maximum government contribution per year will drop from $521.43 to $260.72.
• To receive the full government contribution, a member will still need to contribute at least $1,042.86 per year.

Rationale:

• The government states this is to ensure the long-term sustainability of the scheme and to better target support to those who need it most.
• This change alone will save the government approximately $2.46 billion over four years.

Implications:

• For most savers, especially those on lower and middle incomes, the reduction in government contributions will be offset by increased employer and employee contributions over time.
• However, the cut is significant for self-employed or non-working members who rely solely on their own and government contributions.

2. Increased Minimum Contribution Rates

What’s Changing:

• The default minimum contribution rate for both employees and employers will rise from 3% to 4% of salary and wages.
• The increase will be phased in over three years:
  • From 1 April 2026, the rate will increase to 3.5%.
  • From 1 April 2028, it will rise to 4%.

Opt-Down Option:

• Employees will be able to temporarily “opt down” to the current 3% rate if they are unable to afford the higher contribution. Employers will match this lower rate if the employee chooses this option.

Rationale:

• The government’s modelling shows that higher contribution rates will lead to larger KiwiSaver balances at retirement or when purchasing a first home, even with the reduced government subsidy.
• The phased approach is designed to give workers and employers time to adjust.

Implications:

• Most employees and employers will be required to contribute more, increasing the pool of national retirement savings.
• Over time, this is expected to result in higher balances for savers, supporting both retirement security and home ownership.

3. Means Testing of Government Contribution

What’s Changing:

• From July 2025, KiwiSaver members earning more than $180,000 per year will no longer be eligible for the government contribution.
• Eligibility will be assessed based on the member’s income in one of the last two tax years, once the final tax return is filed.

Rationale:

• The government wants to better target its support, focusing taxpayer resources on those who need it most.
• This is also a cost-saving measure, contributing to the overall fiscal sustainability of the scheme.

Implications:

• High-income earners will lose a small annual benefit, but the impact on their overall retirement savings is expected to be minimal.
• The change is intended to make KiwiSaver more equitable and reduce government expenditure.

4. Extension to 16- and 17-Year-Olds

What’s Changing:

• From 1 July 2025, 16- and 17-year-olds will become eligible for government contributions.
• From 1 April 2026, employers will be required to match contributions for 16- and 17-year-old employees.

Rationale:

• The government aims to encourage young people to start saving early, fostering a “savings habit” and giving them a head start on retirement or first home ownership.
• Early participation allows for more years of compounding returns.

Implications:

• Young workers will benefit from both government and employer contributions, potentially accumulating larger balances over their lifetimes.
• Employers will need to plan for additional matching contributions for younger staff from 2026.

5. Employer Contribution Changes

What’s Changing:

• Employers will be required to increase their minimum contribution rates in line with the phased increases for employees.
• Employer matching will also be extended to 16- and 17-year-olds from April 2026.

Rationale:

• Aligning employer and employee contributions ensures fairness and maximises the impact of the scheme on national savings.

Implications:

• Businesses will need to budget for higher contributions over the next three years, especially those with younger employees.
• The increased employer contributions are expected to help grow KiwiSaver balances and support long-term economic growth.

6. Temporary Opt-Down Provision

What’s Changing:

• Employees facing financial hardship or other challenges will be able to temporarily reduce their contributions to the current 3% rate, with employer matching at that rate.

Rationale:

• This flexibility is intended to ensure that the increased contribution rates do not create undue hardship for workers.

Implications:

• Workers can maintain KiwiSaver participation even if they need to reduce contributions temporarily.
• The provision is expected to reduce opt-outs and keep more people saving for retirement.

7. No Change to Auto-Enrolment Age

What’s Changing:

• The auto-enrolment age for KiwiSaver will remain at 18, despite the extension of government and employer contributions to 16- and 17-year-olds.

Rationale:

• The government wants to encourage voluntary participation among younger savers, while maintaining current administrative processes.

Implications:

• 16- and 17-year-olds will need to actively enrol to benefit from the new contributions.

8. Fiscal and Economic Impact

Savings to Government:

• The reduction in government contributions and means testing for high-income earners will save the government more than $2.46 billion over four years.
• Additional savings from other KiwiSaver changes are expected to total $540 million over four years.

Projected Benefits:

• Higher contribution rates are expected to result in greater retirement savings for most New Zealanders over time, especially for those who remain in the workforce for many years.
• The changes will also increase the pool of funds available for investment in the New Zealand economy, supporting growth and job creation.

9. Who Are the Winners and Losers?

Winners:

• Young Savers: 16- and 17-year-olds now eligible for government and employer contributions, giving them a head start.
• Long-Term Contributors: Those who remain in KiwiSaver and contribute at the higher rates will benefit from larger balances at retirement or when buying a first home.
• Low- and Middle-Income Earners: Continued access to government contributions and higher employer contributions.

Losers:

• High-Income Earners: Loss of government contribution for those earning over $180,000.
• Self-Employed and Non-Working Members: Reduced government contribution without employer matching may slow balance growth.
• Short-Term Savers: Those who do not contribute at the higher rates or who opt out may see smaller balances.

10. Summary Table: Key KiwiSaver Changes in Budget 2025

11. Long-Term Outlook and Policy Philosophy

Sustainability and Equity:

• The government’s stated aim is to ensure KiwiSaver remains sustainable for future generations while targeting support where it is most needed.

Encouraging a Savings Culture:

• By increasing minimum contributions and extending eligibility to younger workers, the Budget seeks to foster a stronger national savings culture and improve retirement outcomes.

Balancing Fiscal Responsibility:

• The changes are part of a broader fiscal strategy to restrain government spending, reduce deficits, and ensure the long-term health of public finances.

12. Practical Advice for KiwiSaver Members

• Review Your Contribution Rate: Check if you are contributing at the new minimum and plan for the phased increases.
• Young Workers: If you are 16 or 17, consider enrolling early to take advantage of new contributions.
• High Earners: If you earn over $180,000, be aware that government contributions will cease from July 2025.
• Self-Employed: Consider increasing your own contributions to offset the reduced government subsidy.
• Employers: Prepare for higher matching obligations and the inclusion of younger employees from 2026.

Summary

Budget 2025 brings sweeping changes to KiwiSaver, halving government contributions, raising minimum contribution rates for both employees and employers, introducing means testing for high earners, and extending eligibility to 16- and 17-year-olds. While some savers—particularly the self-employed and high-income earners—will see reduced benefits, most employees will ultimately build larger retirement or first-home balances thanks to higher contribution rates and earlier participation. The reforms are designed to make KiwiSaver more sustainable, equitable, and effective in helping New Zealanders achieve financial security in retirement and home ownership.