An increase in contribution rates for KiwiSaver won't benefit everyone. Photo: RNZ / REECE BAKER
An increase in contribution rates for KiwiSaver should make most savers better off - but it won't benefit everyone.
As part of the Budget, the Government announced it was increasing the default KiwiSaver contribution rate to 4 percent from employees and 4 percent from employers.
Over a saver's lifetime, including a first home withdrawal, it estimated this could make a high earner 28 percent better off at retirement and a low income or part-time worker 21 percent better off.
But some people won't be better off at all.
Retirement Commissioner Jane Wrightson said about 20 percent of KiwiSaver members would be worse off due to the Budget changes, The changes also included a reduction in the member tax credit to $260.72 (from $521.43 previously) when someone contributed at least $1042, and the removal of the credit entirely for people earning over $180,000.
Finance Minister Nicola Willis revealed the KiwiSaver changes in this year's Budget. Photo: RNZ / Samuel Rillstone
Total remuneration
People who are paid on a "total remuneration" basis will not benefit when contribution rates increase.
"Total remuneration" refers to the practice of employers offering a salary package, from which an employee can choose to make KiwiSaver contributions, rather than setting aside a separate contribution on top of an employee's salary.
Some KiwiSaver providers, such as Kōura founder Rupert Carlyon, have expressed concern that more employers might shift to the total remuneration model, to avoid the higher rates.
Wrightson said it would be important that did not happen. She has been calling for it to be banned for some time.
Earlier Retirement Commission research showed just under half of employers used total remuneration for some employees.
"It goes completely against the sprit of KiwiSaver whereby retirement savings are meant to be contributed by the employer, the employee and the Government contribution," Wrightson said.
"That's the model. People will get no benefit from the changes on a total remuneration contract. This system needs to be changed so that total remuneration is abolished.
"It's the old story - money in your hand versus money salted away. It becomes very tempting, so total remuneration was not permitted in the original KiwiSaver settings, it was changed a few years ago and I think it should change back."
Lower-income workers
Wrightson said lower-income workers were more affected by the drop in the member tax credit because it was responsible for a greater portion of their retirement savings.
She said, for people earning less than $30,000 a year, the member tax credit was expected to add up to 15 percent or 20 percent of their total balance at 65.
With the reduction, it would be 6 percent to 11 percent.
Wrightson said there was a divide forming between people who could afford to make KiwiSaver contributions at all and those who could not.
Self-employed
Self-employed people do not have access to an employer contribution in many cases and many providers say it is common for them to opt to contribute only the $1042 required to get the member tax credit.
In 2024, about 200,000 only received the government contribution, including 125,000 self-employed people, Wrightson said.
She said the commission would conduct some more investigation into the impact of the changes on self-employed people and gig workers.
"We're doing some work with Hnry to look at some of their data… We need to find out who's doing what, who's not doing what, where the gaps are and what the response by Government could be."
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