The Government has announced a series of significant changes to KiwiSaver that will take effect over the next three years. These changes will have a direct impact on both employees and employers, particularly in relation to contribution rates, Government contribution and eligibility rules.

Traditionally, KiwiSaver has been funded through three sources: employee contributions, employer contributions and Government top-ups. The upcoming reforms will place greater reliance on contributions from employers and employees, while scaling back Government support.

For most members, this will mean higher retirement savings over the long term. However, certain groups including high-income earners, low-income earners and self-employed individuals may see a reduction in short-term benefits.

Key Dates and Changes

From 1 July 2025 – Government Contributions Adjusted

• Government contributions reduced: Government contributions decrease from 50 cents to 25 cents per dollar contributed, with the annual maximum reduced from $521.43 to $260.72. To receive the full amount, members must still contribute $1,042.86 annually (between 1 July and 30 June).
• Income threshold introduced: Members earning over $180,000 will no longer qualify for Government contributions.
• Younger members included: Employees aged 16 and 17 who contribute to KiwiSaver will now be eligible for Government contributions.
• Existing entitlements maintained: Contributions for the year ending 30 June 2025 will be paid at the current rate, allowing eligible members to receive up to $521.43 if contributions are made before 30 June 2025.

From 1 April 2026 - Contribution Rates Increase

• Default contribution rates rise: Employee and employer contributions increase from 3% to 3.5%.
• Temporary relief available: Employees may apply to remain at 3% for up to 12 months if affordability is an issue. Employers may also choose to match the lower contribution during this period.
• Expanded employer obligations: Employers will now be required to contribute for employees aged 16 and 17.

 From 1 April 2028 – Further Contribution Increase

• Default contribution rates increase:  The default employer and employee contribution rate will increase from 3.5% to 4%.

Who Stands to Benefit and Who May Not

• Employees earning under $180,000: Increased contributions from both employee and employer accelerate retirement savings growth.
• Young workers: Earlier eligibility allows more years of contributions and compounding returns.
• Future retirees: Increased contribution rates are expected to lead to higher retirement fund balances.
• High-Income Earners: Lose access to Government contributions after 1 July 2025.
• Low-Income Earners: The halved Government top-up may significantly reduce support.
• Self-Employed or Non-Working Members: Without employer contributions and with reduced Government support, balances may grow more slowly unless voluntary contributions are increased.

Employers Considerations

For employers, the reforms bring both financial and compliance implications:

• Increased Payroll Costs: By 2028, default contributions of 4% may significantly impact budgets.
• Review of Employment Agreements: Businesses offering “total remuneration” packages may need to review agreements to manage staff expectations.
• Compliance Obligations Expand: Employers must now contribute for younger employees (aged 16–17).
• Staff communication: Clear guidance on contribution changes and temporary reduction options will help maintain staff engagement and manage expectations.

First Home Buyers

The rules for using KiwiSaver towards a first home remain unchanged. Eligible members can withdraw most of their savings including employee, employer and Government contributions after three years of membership, provided at least $1,000 remains in the account.

The upcoming KiwiSaver reforms represent both opportunities and challenges. While higher contribution rates can significantly boost retirement savings and help younger workers start earlier, reduced Government top-ups and new obligations may affect take home pay and employer budgets. By understanding these changes early, employers can manage costs and compliance effectively and employees can make the most of their KiwiSaver contributions for both retirement and first-home goals.