David Farrar: KiwiSaver moving to 6%

National announced that if re-elected they will increase the default KiwiSaver contribution rates from 3% to 4% (already announced as government policy) and then to 6%. The rates will be:

• April 2026 – 3.5%
• April 2028 – 4.0%
• April 2029 – 4.5%
• April 2030 – 5.0%
• April 2031 – 5.5%
• April 2032 – 6.0%

This will basically align us with Australia that also has 12% contributions.

1. I think this is a good move, for two reasons.

People will tend to save more when their contributions are taken out of their pay before they even reach their bank account. Expenses often rise to match income, so having the savings taken out at source helps save. I have my KiwiSaver set at the maximum 10% contribution rates, so that the money goes to my retirement savings before I even get a chance to spend it! This is also why PAYE tax is so effective. People would pay a lot less tax if they had to send a cheque into IRD every month.

2. I want private retirement savings to increase, so the burden on taxpayers of the public superannuation scheme can decrease. Once you have a generation of NZers who have been contributing 12% of their salary into KiwiSaver, they won’t need such a generous NZ superannuation scheme. These changes would see a new worker have $1.4 million in their KiwiSaver account at age 65. They then won’t need $414 a week from the taxpayer.

This will have an impact on employees and employers. They are:

• Net take home pay for employees will be 3% lower on a 6% contribution rate than a 3% contribution rate. But this is over seven years. Over seven years wage rates will increase by around 33% nominally, so take home pay will be 30% higher, rather than 33% higher. Also worth noting employees can stay on a lower rate than the default rate if they face hardship.

• The cost to employers of staff will increase 3% over seven years. Now again this will be on top of a probable 33% or so increase anyway.

If the future cost of NZ Superannuation isn’t reduced, then NZ faces massive tax hikes. Having more NZers with greater private savings will create a political environment where changes to NZ Super are more palatable in future.

David Farrar runs Curia Market Research, a specialist opinion polling and research agency, and the popular Kiwiblog where this article was sourced. He previously worked in the Parliament for eight years, serving two National Party Prime Ministers and three Opposition Leaders