Distributional Impact of New Zealand Budget 2025 KiwiSaver Changes

Abstract

Changes to the KiwiSaver scheme were introduced as part of Budget 2025. The changes will see employee and employer contribution rates increase over time to 4% for employees and 4% for employers and should generally lead to higher KiwiSaver retirement savings for salary and wage earners. However, another change, the decrease in the government contribution, will mean that (absent behavioural changes) some KiwiSaver members will have lower retirement savings than would otherwise have been expected, including members who are self-employed. Low-income members will also tend to be affected more, as the government contribution makes up a greater portion of their eventual retirement savings. We estimate that, in total, the changes in the Budget could increase KiwiSaver retirement savings for around 80% of currently contributing KiwiSaver members and reduce KiwiSaver retirement savings for around 20% relative to what would have been expected without the changes. Improving the targeting of the remaining funds for the government contribution could potentially improve the retirement outcomes for this 20% of members, but further work is required to determine the best approach. A broader issue that remains unaddressed is determining the optimal government incentive for a scheme designed to encourage private retirement savings, within the context of the entire retirement income system, which includes both private savings and New Zealand Superannuation.