KiwiSaver providers weigh in on potential government contribution changes

KiwiSaver providers are voicing mixed views over potential changes to the annual $521 government contribution, with some warning it could hurt participation and others seeing a chance to improve equity.

Government may means-test KiwiSaver subsidy

Finance Minister Nicola Willis (pictured) has not ruled out changes to the KiwiSaver member tax credit—a contribution of up to $521 annually for eligible members who contribute at least $1,042 themselves.

Speaking to Newstalk ZB on Tuesday, Willis said all options were on the table. Her office has been asked for further clarification, sparking industry debate over how best to allocate the $1 billion the government spends annually on the scheme.

Critics argued the current tax credit system favours higher-income earners who can afford to contribute, while lower-income New Zealanders are more likely to miss out.

Short-term pressures and long-term sustainability concerns

The timing of the review is particularly important, as KiwiSaver balances have recently come under pressure—posing additional challenges for first-home buyers.

These short-term strains are adding to growing concerns over the long-term sustainability of retirement savings.

According to the Retirement Commission, raising KiwiSaver contributions from 3% to 4% for both employees and employers could extend retirement fund sustainability by 20–30%. Experts say the increase is essential to support retirees' living standards for decades longer.

Review a chance to boost retirement equity

Pie Funds CEO Ana-Marie Lockyer said the review presented an opportunity to better align the incentive with retirement outcomes.

“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,” Lockyer said.

She supported targeting support where it’s needed most, rather than scrapping the subsidy.

“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.”

Lockyer warned that the review must avoid discouraging lower and middle-income Kiwis from engaging with the scheme.

“Remember, the $521 on its own can become $76,000 for a KiwiSaver member over time,” she said.

Means-testing could encourage broader participation

Lockyer argued that means-testing the subsidy could improve fairness and encourage more consistent contributions from lower earners, RNZ reported.

“Means-testing the government contribution could help ensure lower-income earners get proportionately more support, potentially encouraging more participation from that segment,” she said.

Lockyer also flagged the underutilisation of the current scheme as a concern.

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

Removing the incentive risks undermining savings

Rupert Carlyon, Kōura Wealth managing director, said scrapping the tax credit would be counterproductive, particularly with questions looming over the long-term sustainability of NZ Super, RNZ reported.

“Removing an incentive to saving would be short-sighted, when NZ Super was not sustainable in its current form,” Carlyon said.

He contrasted the discussion with Australia’s more robust superannuation model.

“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,” Carlyon said.

Kōura Wealth leader was critical of the government’s spending priorities.

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

Industry concern over disincentivising contributions

Milford Asset Management KiwiSaver Head Murray Harris said any move to weaken the government contribution would reduce motivation for many Kiwis to save.

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