KiwiSaver Providers Mull Possible Changes To 'Free' $521 A Year

Thursday, 1 May 2025, 6:48 pm
Article: RNZ

Susan Edmunds, Money Correspondent

KiwiSaver providers are divided on whether changes to the $521 offered by the Government to each KiwiSaver member every year could be positive for the scheme.

Speaking to NewstalkZB on Tuesday, Finance Minister Nicola Willis would not rule out changes to the KiwiSaver subsidy, including means-testing the contribution. Her office has been asked for further information.

KiwiSaver contributions cost the Government about $1 billion a year, with $521 available to every member who contributes at least $1042 in a year.

A criticism of the member tax credit is that it generally goes to those who can afford to save and invest in KiwiSaver, rather than lower-income households.

Willis has already signalled a desire to see higher contribution rates to KiwiSaver.

Pie Funds chief executive Ana-Marie Lockyer was encouraged that KiwiSaver was up for review and that Willis was considering all options to improve the settings to support retirement outcomes for New Zealanders.

"It's sensible to assess whether the $1.1 billion annual spend is delivering the best possible outcomes in line with the goal of comfortable retirements for all New Zealanders," she said.

Lockyer was not opposed to Government spending targeted to better address inequities in KiwiSaver, which she said would be better than removing the incentive altogether.

"It's important the review isn't seen purely as a cost-saving exercise, but rather as a way to retarget the benefit to those who need it most.

"Care is needed to ensure the change doesn't discourage engagement from low to middle-income earners. Remember, the $521 on its own can become $76,000 for a KiwiSaver member over time."

She said redirecting support to lower-income earners would not change the appeal of the scheme for many members.

"Particularly those who receive the Government contribution by default, as their incomes automatically qualify them, but [it could] positively improve equity and entice more New Zealanders at the lower end of the income spectrum to join KiwiSaver and contribute regularly - leading to more people achieving better long-term financial outcomes and ultimately reducing longer-term dependence on government support."

"Means-testing the Government contribution could help ensure lower-income earners get proportionately more support, potentially encouraging more participation from that segment."

A third missing out

Lockyer said a bigger issue was the number of people not receiving the government contribution or not getting the full amount.

"In 2024, the government paid around $990m," she said. "Based on nearly 3 million KiwiSavers between 18 and 65 total, payments have the potential to be closer to $1.5b, so nearly a third appear to be missing out.

"There are many reasons for this, but in some cases, they may well be the members that need support growing their long-term retirement savings."

Kōura Wealth's Rupert Carlyon said removing an incentive to saving would be short-sighted, when NZ Super was not sustainable in its current form.

"The $521 is not really enough, although in an ideal world, we would be looking at the Australian system, where they use a combination of means testing and real incentives to ensure the long term sustainability of superannuation.

"It shows where current Government priorities lie though, when they are looking at cutting $1b of spending to help people's futures, so they can fund an extra $1.5b in NZ Super next year.

"What do they have to cut the following year to ensure they can keep providing super at the same levels? Yup, NZ Super cost grows at about $1.5b each year."

Milford Asset Management's KiwiSaver head Murray Harris said Government changes to the contribution would be a "real shame".

"It's one of the main incentives and reasons why people contribute, especially for the self-employed, who don't benefit from employer contributions."

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