Budget 2025 Explained: What the KiwiSaver Changes Mean for You

This Budget is about saving rather than spending. With 116 initiatives either stopped or cancelled, the government has generated $5.3 billion in annual savings. At the same time, the operating allowance is down to $1.3 billion per year—the lowest in ten years. While some welcomed the return to fiscal conservatism, others felt it missed an opportunity for smart investment that could stimulate the struggling economy.

Against this backdrop, KiwiSaver changes were introduced not to expand the system, but to pare it back. And yet, they’ve sparked plenty of discussion—both for what was included and what wasn’t.

At the centre of the Budget 2025 changes is a major overhaul to the government contribution scheme. The popular $521 matching contribution—previously available to all qualifying members—has been reduced. While some might mourn the loss, others argue it served its purpose in the early days of KiwiSaver and has now outlived its usefulness.

Modelling shows that a 20-year-old earning $100,000 annually could see $110,000 less in retirement savings due to this cut. That’s significant, but not necessarily catastrophic—especially when paired with new initiatives aimed at encouraging earlier KiwiSaver participation.

The government is extending contributions to 16- and 17-year-olds, enabling young Kiwis to benefit from an earlier start and additional years of compound growth. It’s a smart move, especially for those heading straight into trades or the workforce from school.

On the flip side, government contributions will now be means-tested and phased out above $180,000 of income. For many in this income bracket—particularly business owners and professionals—this is seen as fair. They’re likely already contributing and have access to better financial advice and resources.

From April 2026, minimum contributions will increase to 3.5% from both employers and employees. By April 2028, that figure rises to 4% each. While this is a step in the right direction, there’s frustration that it doesn’t go far enough. Many experts point to Australia’s 10%–12% superannuation contributions as the benchmark.

There’s also disappointment that the Budget didn’t address tax incentives for voluntary contributions—particularly for the self-employed—or the often-confusing separation between employee and employer contributions. These omissions leave important KiwiSaver gaps unaddressed.

One of the more passionate talking points was around making contributions mandatory. While some argue for individual choice, advocates point to financial literacy gaps and the long-term security compulsory saving can provide—particularly for those who may not otherwise prioritise retirement.

As always, it comes down to a trade-off between present-day spending and future financial wellbeing. Reducing incentives may make it harder to save now, but even modest increases in contributions can lead to significantly better outcomes down the line.

• The government has reduced its annual KiwiSaver contribution, saving funds but potentially lowering long-term retirement balances.
• Contributions are now open to 16- and 17-year-olds, a positive move to harness early compounding returns.
• High earners ($180k+) will no longer receive government contributions.
• Minimum contribution rates are increasing to 4% by 2028 but fall short of aligning with international best practice.
• Key omissions include tax incentives for voluntary contributions and a simplification of employer vs employee input.
• The case for mandatory contributions is stronger than ever in a landscape of low financial literacy and rising retirement costs.

If you’d like to learn more, check out these other episodes below.