Just 0.5 percent of New Zealand workers actively contributing to their KiwiSaver scheme have chosen to opt out of a higher contribution rate, according to new figures.
Finance Minister Nicola Willis has hailed the result as a win – but says the Government still does not intend to provide the public service with extra funds to help agencies meet the extra costs of funding higher employer contributions.
At last year’s Budget, Willis announced the default rate for employee and employer KiwiSaver contributions would be increased from 3 percent of salary and wages to 4 percent over three years.
The default rate rose to 3.5 percent on April 1 this year, with a final increase to 4 percent in April 2028, but employees are able to opt out and remain at the original level.
According to data provided to Newsroom, just under 9300 KiwiSaver members had chosen to opt out as of this week – 0.5 percent of the 1.8 million employees making contributions through salary and wage deductions, and just over 0.25 percent of overall KiwiSaver membership.
With many New Zealanders concerned about the cost of living and higher fuel prices caused by war in the Middle East, some initial estimates had suggested the number of Kiwis opting out could be higher.
In a survey carried out by the ASB bank in March, 15 percent of respondents said they planned to stay at the 3 percent threshold, with 10 percent intending to halt their contributions altogether.
Willis told Newsroom ahead of National’s party conference today she was “delighted” with the result, as small differences in weekly contributions could make a significant difference over the life of a KiwiSaver scheme.
An 18-year-old on the minimum wage who joined KiwiSaver on April 1 would have $930,000 in their KiwiSaver scheme at the age of 65 if their earnings stayed on a typical trajectory – $190,000 more than would have been the case at 3 percent contributions.
Inland Revenue and Treasury officials initially advised Willis to defer a decision on the contribution rates, citing the risk of reduced profitability for businesses and the potential diversion of funds that could otherwise go towards capital investment.
“An increase in labour costs could be enough to force some businesses to alter their hiring decisions or change their capital investment plans. This in turn could undermine elements of the Government’s growth agenda.
“We expect much of the cost of the higher employer contribution to be passed on to employees by way of slower wage growth.”
However, Willis said there had been no signs of significant opposition to the changes, with most employers recognising the value of helping their employees to build financial security. The increase had also been phased in over multiple years to provide businesses with time to adjust.
The rise in contributions also has implications for the public service, which employs just under one-fifth of the country’s total workforce.
After the changes were announced last year, Green Party co-leader Chlöe Swarbrick alleged the Government had created a fiscal hole of up to $714 million by failing to account for the increased costs of its own employer contributions.
While this year’s Budget included $155m over four years to fund the increase for teachers and teacher aides, Swarbrick said that still left almost $500m that had not been properly accounted for. The increased costs also come as agencies are being asked to cut their baseline allowances by 2 percent in the coming financial year, then a further 5 percent in each of the following two years.
But Willis told Newsroom the Government had no intention of providing agencies with extra funds to cover the costs, saying: “Other government agencies are funding the increases out of their baselines. They have planned and budgeted for this.”
