By Sharon Mackay, CEO, Aurora Capital.
The recent government announcement on KiwiSaver introduces significant changes, and overall we see this as a step in the right direction for New Zealanders' retirement and first home savings.
Staggered increase to contributions
The increase in both member and employer contribution levels is a welcome development. It’s a subtle yet powerful nudge toward better long-term outcomes. Even small increases in KiwiSaver contributions can make a meaningful difference over time.
For example, an 18-year-old earning $50,000 annually and contributing 3% of their salary, matched by their employer, could build a KiwiSaver balance of around $385,624* by age 65 in a growth fund. If both the member and employer increased their contributions to 4%, that balance could grow to approximately $483,370*, a difference of about $97,728. The power of incremental increases can significantly aid New Zealanders in building funds for their retirement or first home.
Lowering the age for employer contributions
A particularly commendable change is making employer contributions mandatory for 16 and 17-year-olds in paid employment. This initiative sets a strong precedent for early savings, leveraging the power of compound interest to build financial resilience from the outset.
Halving the government contribution
On the flip side, the reductions in government subsidies are noted. Whilst it’s disappointing to see these incentives scaled back, it does prompt reflection on whether these specific incentives were reaching their natural course, or could they be used to better effect.
The value of financial advice
Navigating KiwiSaver effectively and building a secure financial future is often much easier with expert guidance. Research shows that individuals who receive financial advice consistently experience better outcomes. The Financial Services Council found that people who work with an adviser on average gain about 4% more returns on their investments than those who aren’t advised.**
Looking ahead
At Aurora Capital, we believe accessible, high-quality advice should be available to all New Zealanders. Having a trusted adviser can make a lasting difference, not just in numbers, but in building lasting prosperity.
Looking forward, we see a clear need for a consistent and long-term roadmap for KiwiSaver. This should have support from all major parties. A shared commitment would give New Zealanders the confidence to plan ahead, contribute more, and stay engaged throughout their savings journey.
We’re optimistic about the positive impact of these changes on KiwiSaver balances and the financial security of all New Zealanders.
*Calculated using Sorted NZ.
**Money and You: Literacy, Insight, Advice, Financial Services Council August 2020: https://f.hubspotusercontent10.net/hubfs/7422267/FSC%20Corporate/Research%20Reports/FSC%20-%20Money%20%26%20You%20-%20Literacy%2c%20Insight%2c%20Advice%20-%20August%202020.pdf