KiwiSaver incentives have lessened incrementally over the years, but there are still good reasons to remain engaged, writes Shamubeel Eaqub.

KiwiSaver remains New Zealand’s most widely used retirement savings vehicle with 3.4 million members, despite successive governments adjusting its settings since its inception in 2007. Incentives matter: they shape how we save. Over time, the incentives linked to KiwiSaver have become less generous, including the most recent 2025 Budget changes. While this hasn’t yet shifted saving habits, it should be a prompt for the self-employed in particular to revisit their long-term retirement plans.

KiwiSaver is still popular

KiwiSaver remains popular for those in “regular” jobs but less popular with people on low income or in unstable work, and the self-employed (who often opt out or don’t contribute). The beauty of KiwiSaver lies in its simplicity: a slice of your regular income goes straight into your retirement fund, topped up by employer and government contributions. Over time, those steady deposits – combined with the power of compounding – can turn modest savings into a substantial nest egg.

With savings tied up until retirement eligibility age (65) and limited exceptions for first-home withdrawals and hardship, many Kiwis dislike KiwiSaver as they either don’t understand it, or feel like reduces their options. On the other hand, some like the lock-in, as it protects the money from themselves.

Incentives have reduced over time

Countries like Australia have made the locked-in nature of their retirement savings scheme more palatable with strong incentives such as favourable tax treatment and high employer contributions. New Zealand’s incentives have become a lot less generous over time, with plenty of examples:

There was originally a $1,000 kickstart for anyone joining the scheme, which was removed in 2015. This reduced the incentive for parents to sign their children up (given the lack of other benefits for children to be in KiwiSaver), and the number of under-18 members fell sharply once the kickstart was removed. This showed clear evidence that incentives matter. When there is no good reason to join, people just won’t bother.

Other incentives have also been reduced over time. A $40 fee subsidy was removed in 2009, just two years after the scheme was introduced. The government tax credit (otherwise known as subsidy or government contributions) started at $1,040, was reduced to $521 in 2012, and most recently to $261 in 2025. Interestingly, all the significant cuts to KiwiSaver have happened under National-led governments.

Employer contributions were initially tax-free, but became taxed from 2012, and often at a higher rate than the employee tax rate. You may have noticed this in your KiwiSaver fund if your employer matches the rate of your own contributions. In this case, employer contributions may appear smaller than yours, depending on your income tax bracket and the equivalent employer superannuation contribution tax (ESCT) level – which is less tiered.

New Zealand has an ungenerous pension savings scheme. When KiwiSaver was first introduced, the value of incentives was worth about $57,000 over a working life for the average person, by the time they reached age 65. After the latest set of changes, it is now down to around $13,500 by age 65. The latest changes are worth a look at in a little more detail, because there are positive and negatives.

The changes

The first positive change on the horizon is the gradual lift in contribution rates – from 3 per cent each for employee and employer to 4 per cent each by 2028. That will mean bigger balances at retirement, but even then, our combined rate of 8 per cent contributions will still lag well behind Australia’s 12 per cent. It’s a reminder of KiwiSaver’s biggest drawcard: if you’re not contributing, you’re effectively turning down free money from your employer – unless you’ve negotiated the equivalent in your pay packet.

Second, 16 and 17-year-olds will now also be eligible for employer contributions, which had previously started at age 18. This will make a significant difference to young people, thanks to the compounding effect of earlier savings. Starting earlier will mean the average teenager will have $20,000 more (excluding inflation) by the age of 65.

On the flipside, the government contribution will halve from $521 to $261, if a member is eligible for the full amount and contributes at least $1,043. It will also become means tested, and those earning over $180,000 will get no government contribution. In this case for the high earner, the only incentive to remain in the scheme will be employer contributions, which should still be a strong motivator.

Incentives to contribute remain

Regular employees will have more savings in retirement because they will be contributing more (both employer and employee contributions), but less of these savings will come from government-funded incentives, and people will also see less take-home pay while working.

As a simple scenario, an average earner would have $750 less take-home pay per year but have roughly $25,000 more in retirement savings under the recent changes. Perversely, the government will increase their revenue from the scheme, as opposed to it being a net deficit. This equates to roughly $500 benefit to the government per taxpayer per year, from more taxes and less subsidies.

But for the average Kiwi, it is still worth exploring whether the retirement savings they are accruing in their KiwiSaver fund are sufficient for their intended lifestyle in retirement.
There are some great resources available to do so, including Sorted’s retirement calculator. For many, the projected balance at retirement will not be enough, so they may opt to invest in other ways (investment funds, property).

For the self-employed, the incentivised savings amount is likely to be too small to make a meaningful difference in retirement. This group is perhaps the most interesting, because there are some 700,000 self-employed people in New Zealand. For them, it is really important to maximise KiwiSaver entitlements, but also have other long-term savings.

My own experience can perhaps shine a light on the many choices available to others who are self-employed.

My strategy was to contribute the minimum amount to KiwiSaver to access the government subsidy, plus save regularly in other ways. Options include investment funds, term deposits, venture capital, and paying down the mortgage, and investment property. Because my income was lumpy and unpredictable,

I typically held decent amounts in savings products and only invested the excess.

I had an overall plan for how much I aimed to invest every year – but it flexed with the realities of the financial year.

Here’s a brief checklist to consider, whether you are an employee or not.

• How much do you need to contribute to maximise your entitlements (employer contributions and tax incentives)?
• Choose the KiwiSaver provider that matches your needs, and the fund type that has the right level of risk for you.
• How else could you invest, to reach your retirement goals?
• Consider getting independent financial advice.

Government incentives for KiwiSaver have shrunk, but it still pays to make the most of what’s on offer. Self-employed people should contribute enough to get the full entitlements and build supplementary savings on the side. For employees, increasing employer contributions remain a powerful incentive. While saving habits haven’t shifted yet, these changes are a timely prompt to review your financial plan, decide how much to invest in KiwiSaver, and consider other ways to grow your wealth for the future. T

Shamubeel Eaqub is chief economist and head of policy at Simplicity.

The information provided and personal opinions expressed in this article are intended for general guidance only and not personalised to you. These materials do not take into account your particular financial situation or goals and are not financial advice or a recommendation.