KiwiSaver changes in the 2025 New Zealand Budget

The 2025 Budget introduces staged increases in KiwiSaver contribution rates for employers, requiring careful cashflow planning. From 1 April 2026, the default employer contribution rate rises from 3 percent to 3.5 percent, and again to 4 percent on 1 April 2028. For a business with annual payroll of NZD 500,000, the first step up adds NZD 2,500 in KiwiSaver outlays in year one, and an additional NZD 2,500 in year two. These scheduled increases must be factored into multi-year cashflow forecasts to avoid liquidity strains when the new rates take effect.

Exemption application
Businesses can apply for a temporary rate reduction to remain at 3 percent contributions from 1 April 2026. The reduction can span 92 days to 12 months and be renewed indefinitely, subject to Inland Revenue approval. While this gives firms flexibility during tight periods—such as seasonal downturns or major capital investments—it also adds administrative tasks: tracking expiry dates, re-applying online, and informing payroll teams and trustees of any chosen temporary rates.

Extension of the Scheme to new age groups
Extending compulsory employer contributions to 16- and 17-year-olds from 1 April 2026 further expands businesses’ payroll obligations. Any firm hiring younger workers must budget for extra KiwiSaver payments, even if the number of employees in this age bracket is small. A café employing five 17-year-olds on an average weekly wage of NZD 500 would see annual KiwiSaver costs climb by approximately NZD 455 per employee when the rate rises to 3.5 percent, growing further when it hits 4 percent.

Reduction in government contributions
Although the government contribution rate for savers halves from 50 cents to 25 cents per dollar on 1 July 2025, reducing the maximum annual subsidy from NZD 521.43 to NZD 260.72, this change does not directly affect employer outflows. However, employees facing a lower subsidy may seek higher gross wages to compensate, potentially influencing salary negotiations and increasing overall labour costs indirectly.

Actions to consider
To manage these changes effectively, businesses should take the following actions:

• Update payroll systems by early 2026 to accommodate new contribution percentages, ensuring timely remittance and avoiding penalties.
• Revise cashflow projections and budget allocations for 2026–2028, incorporating the step-up in employer KiwiSaver costs.
• Communicate with employees about their contribution options, including temporary rate reductions, to maintain morale and transparency.
• Assess headcount in the 16–17 age group and factor additional KiwiSaver payments into workforce planning.
• Monitor employee feedback on reduced government contributions, adjusting remuneration strategies if necessary to retain talent.

By proactively integrating these KiwiSaver settings into financial models, businesses can smooth cashflow impacts, maintain compliance, and anticipate workforce cost pressures over the next three years.
If you wish to discuss any aspect of the above changes and how this may impact your business, please contact Nish Sethi on [email protected].