Budget 2025 Enhances KiwiSaver Contributions to Boost Savings and Sustainability

The New Zealand Government, through Budget 2025, has unveiled a significant overhaul of the KiwiSaver retirement savings scheme. Finance Minister Nicola Willis announced changes aimed at enhancing long-term financial security for New Zealanders, particularly those saving for their first home or retirement, while ensuring the programme remains fiscally sustainable for the government.

KiwiSaver, a cornerstone of New Zealand’s savings framework, had over 3.3 million members as of 31 March 2024 and managed a fund of $111.8 billion. The average balance per member stood at $33,514. The new reforms are expected to considerably boost these figures over the coming years.

Gradual Increase in Default Contribution Rate

A central feature of the reform is the phased increase in the default KiwiSaver contribution rate from both employees and employers. Currently set at 3% of wages or salary, the rate will gradually rise to 4% over the next few years. The increase will occur in two stages:

• From 1 April 2026, the default contribution rate will rise to 3.5%.

• From 1 April 2028, it will further increase to 4%.

This increase applies only to those who are in default settings, meaning individuals automatically enrolled in KiwiSaver who have not chosen their contribution rate. Employees will retain the option to remain at the 3% rate if they feel financially unable to contribute more. However, their contributions will automatically reset to the new default after 12 months unless they actively opt down again, allowing for flexible participation that adjusts to individuals’ circumstances.

Encouraging Youth Participation

Another key initiative expands coverage to younger workers. The government contribution and employer matching will now include 16- and 17-year-olds, encouraging early savings habits and greater financial literacy among younger New Zealanders entering the workforce.

This move acknowledges that the earlier individuals start contributing to retirement savings, the greater the compounding benefits over time. It’s expected to establish a culture of saving from a young age, reinforcing the role of KiwiSaver as a lifelong savings vehicle.

Reducing Fiscal Burden: Government Contribution Cuts

While contribution rates are increasing, the annual government contribution to individual KiwiSaver accounts will be halved. Currently, the government matches 50 cents for every dollar contributed by a member, up to a maximum of $521.43 per year. Under the new rules effective from 1 July 2025, this rate will drop to 25 cents per dollar, with the new cap set at $260.72 annually.

In addition, members earning over $180,000 per year will no longer be eligible for any government contribution, targeting fiscal support to low- and middle-income earners who are more reliant on government incentives to build their savings.

These measures aim to rein in the growing cost of the scheme to taxpayers, especially as membership numbers and average contributions increase.

Economic Impact and Investment in New Zealand

The changes are expected to grow KiwiSaver balances significantly over time. Increased contributions—particularly from default members—will result in larger retirement nests and bigger deposits for first-home purchases.

From an economic perspective, this also means more capital available for domestic investment. The Reserve Bank estimates that around 40% of KiwiSaver funds are invested in New Zealand assets. With a larger pool of managed funds, the Government is actively working to remove barriers preventing greater investment of KiwiSaver funds in local businesses, infrastructure, and other national development projects.

This policy aligns with broader economic goals: fostering domestic investment, supporting capital markets, and ensuring that KiwiSaver contributes meaningfully not just to individual prosperity, but to national economic growth.

Public Response and Long-Term Vision

While some may raise concerns about reduced government contributions, particularly among higher earners, the overall structure remains generous—especially when considering that the government and employers are now contributing more broadly through the increased default rates.

The Government has stressed that the new KiwiSaver structure remains flexible and inclusive, allowing people to adjust their contribution levels while continuing to benefit from employer matches and compounding investment returns.

Finance Minister Nicola Willis concluded that the Budget 2025 KiwiSaver reforms are a strategic step to enhance long-term financial security for New Zealanders, promote a stronger savings culture, and create a more equitable and sustainable system for the future.

“Most New Zealanders have already embraced KiwiSaver as a simple way of accumulating savings to supplement their income in retirement,” said Willis. “The Budget’s KiwiSaver package is designed to encourage them to save more so they can look forward to greater levels of financial security.”