KiwiSaver updates affecting employees and employers: here’s what you need to know

The Government’s 2025 Budget reforms and updated tax law introduce major changes to KiwiSaver, designed to boost savings, refocus government support, and modernise the KiwiSaver Act 2006 and related tax rules.

The changes mean contribution rates for employees and employers will increase gradually in two stages, and eligibility for government and employer contributions will now include 16- and 17-year-olds. Additionally, the government contribution (member tax credit) will be reduced and adjusted based on income, providing less support to higher earners.

In this article, we’ll outline what’s changing and what employers need to do.

Contribution rates are increasing in two steps

• From 1 April 2026, the default rate for both employees and employers will lift from 3% to 3.5%.
• From 1 April 2028, the default rate will increase again from 3.5% to 4%.

These phased increases are explicitly framed by the Government as a way to encourage higher savings while allowing time to plan.

Temporary rate reduction

Employees will have the option to apply to Inland Revenue for a temporary reduction to a 3% contribution rate once the default increases take effect. If approved, both the employee and their employer will be notified by Inland Revenue.

Applications will open on 1 February 2026, ahead of the rate increase on 1 April 2026.

Each temporary reduction must last at least 92 days and no more than 12 months, after which contributions will return to the default rate. Employees can reapply for additional temporary reductions with no limit on the number of applications, but each new reduction must also fall within the 92-day to 12-month timeframe. Inland Revenue will provide more detailed guidance closer to the start date.

Matching the reduced rate

When an employee is on an approved temporary reduction, the employer may choose to match 3% (instead of the otherwise applicable 3.5% from 2026 or 4% from 2028).

What happens if an employee changes jobs during a reduction?

Employees must provide evidence of the ongoing reduction to a new employer; the legislation provides for adjustments or refunds if higher deductions were made before evidence was received.

Extension of contributions to 16- and 17-year-olds

• Employer contributions become compulsory for eligible individuals aged 16 and 17 from 1 April 2026.
• Government contributions (member tax credit) become available for individuals aged 16 and 17 from 1 July 2025.

Government contribution (member tax credit) changes

From 1 July 2025, the government match rate is halved to 25 cents for every $1 of member contributions, with a new annual maximum of $260.72.

From the same date, members with annual taxable income over $180,000 are no longer eligible for the government contribution.

What the shift from 3% to 4% can mean at retirement

The Government’s example (using Sorted’s calculator) shows that an 18-year-old earning $48,000 in a balanced fund would have about $895,000 at age 65 under the new settings, compared with about $721,000 under the previous settings.

While this example isn’t inflation-adjusted, the Minister notes retirement savings remain higher even after inflation adjustments, and people are encouraged to model their own situation on sorted.org.nz.

The policy is designed to achieve two main goals:

• helping individuals grow their savings balances
• increasing the amount of domestic capital available for investment in New Zealand.

Key legislative references and status

The changes are enacted in the Taxation (Budget Measures) Act (No 2) 2025, which amends the KiwiSaver Act 2006, Income Tax Act 2007, and Tax Administration Act 1994.

Practical takeaways for employers

• Plan for higher employer contributions at 3.5% from 1 April 2026 and 4% from 1 April 2028, noting the option to match 3% when an employee has an approved temporary reduction.
• Update onboarding and payroll settings for employees aged 16 and 17 from 1 April 2026
• Ensure payroll can process temporary rate reductions (including handling notifications from IRD).

Need Help Navigating KiwiSaver Changes?

Citation HR is here to make managing workplace obligations stress-free. Our HR Software is a complete management system designed to help you stay compliant and organised, with detailed contracts, templates and tools.

KiwiSaver isn’t just about retirement savings and investment – it’s about meeting your legal obligations as an employer. If you need help understanding these new contribution rules, managing payroll changes, or have other workplace matters you need assistance with, please contact our employment relations experts via our Advice Line.