KiwiSaver’s Government Contribution is Being Cut – Here’s What I’m Doing About It
Every June, I check in with our KiwiSaver accounts to make sure we’re on track to receive the annual government contribution. If you put in at least $1,042 by the 30th of June 2025, the government will deposit $521 into your KiwiSaver account; a welcome little bonus for those of us thinking ahead to retirement.
But that’s about to change. Again. Governments can’t help themselves; unfortunately, they keep tinkering with KiwiSaver. The biggest move was shifting it from a retirement savings tool to a first home buying tool and a retirement savings account. It is not a compulsory scheme; you can opt out and not even save for retirement, and there are no tax advantages to investing in it, unlike in other countries. They removed the $1,000 ‘kickstart’ when you first signed up, plus they also used to match dollar for dollar the $1,042 I contributed, but then halved it. From 1 July 2025, the government will halve that contribution again, from $521 to just $260 annually. That’s another big cut, and it’s got me thinking hard about how I am using KiwiSaver.
Since I became self-employed in 2024, apart from the $521 government contribution, there have been no additional KiwiSaver incentives for me. With the government’s contribution shrinking, yet again, it’s time for me to rethink my strategy.
I’ve already shared in my fortnightly email that I was considering ceasing payments into my KiwiSaver. Still, my friend Wayne queried my decision-making, so I thought I’d further explain what I’m planning on doing with my KiwiSaver, and what Jonny and I are planning as a couple, especially given we will be retiring in our fifties.
What’s Changing with the KiwiSaver Government Contribution?
The current setup is straightforward: contribute at least $1,042 (employee or voluntary contributions) by June 30, and the government will deposit $521 directly into your KiwiSaver account. Kiwis needed to be coaxed into saving for retirement, and this incentive helped build the habit of long-term investing.
But come July 2025 and beyond, you will still need to contribute $1,042, but will receive a government contribution of just $260 into your KiwiSaver account.
It’s a 50% reduction that particularly affects people who make voluntary contributions because they are self-employed, casually employed, stay-at-home parents, or taking career breaks. Basically, the original $1,042 government contribution was cut to $521, and it is now being cut to $260.
It is worth noting that they made other changes. While reducing government contributions (to save the government money), they have increased the default contribution rate up to 4% for both employer (costing the employer more money) and employee contributions (reducing your take-home pay), and this is being phased in over the next few years. I’ve heard of several employers who offered to immediately increase their rates to 4%, which is generous of them. You can read about all the changes here: What Budget 2025 brings to your KiwiSaver future
Why does cutting the government contribution matter to ME so much
I’ll turn 65 in 14 years. I currently have about $130,000 in my KiwiSaver account. If I continue with my KiwiSaver contributions, I’ll deposit $1,042 per year from my after-tax income, and receive the $260 from the government (for a total of $1,302), giving me an approximate KiwiSaver balance of $409,000 at 65. If I still contributed my $1,042, but didn’t get the government top-up, my retirement balance would be about $404,000. Giving up the annual $260 contribution would see me $5,000 worse off at 65.
Take a look at the tables below to see what I mean:
The ChooseFI Future Value Calculator shows an estimated future value of $409,822 with regular annual additions of $1302 over the next 14 years.
The ChooseFI Future Value Calculator shows an estimated future value of $404,233 with regular annual additions of $1042 over the next 14 years.
Tying $1,042 x 14 years into a retirement account, with no other benefit than receiving a $260 government payment, which, given the government's track record, is likely to be removed at some point, no longer fits in with my financial plans.
What This Means for Our Household
In our household, we’re coming at this from two different angles.
Jonny works for an employer. Between his 3% employee contributions and his employer’s 3% addition to his fund, he ends up well over the $1,042 threshold each year, meaning he’ll continue to get the government contribution, even when it drops to $260. He ends up thousands of dollars better off each year just for participating, and the employer match is worth receiving.
He won’t do anything differently. It’s business as usual for him as his KiwiSaver continues to quietly tick away in the background in his Investnow Foundation Series Total World KiwiSaver Fund. This is a low-fee, KiwiSaver fund.
For me, it’s a different story. I’m self-employed, so I must make conscious, manual decisions to contribute to my KiwiSaver. And until now, voluntarily investing ~$20 a week to get my $521 government contribution has felt worth it. As my friend Wayne pointed out to me, it was a 50% return.
But from July 2025, I needed to decide whether putting $1,042 of my after-tax income into a fund I can’t access until I’m 65 is still worth it, just for a $260.
I have been asking myself the question, Is it worth it? The short answer? No.
Why I Need Access to My Investments Before 65
If we were on a traditional path to retirement, where we work full-time jobs for an employer and quit on our 65th birthday, I’d continue to invest in my KiwiSaver without hesitation.
However, here’s the thing: Neither of us is planning to wait until 65 to retire. And I work for myself.
Our goal is to be financially independent enough that we can stop working in our 50s. That means we’ll need access to our invested money before the standard KiwiSaver withdrawal age.
Not investing is not an option. But for me, KiwiSaver is not the right way to do it.
We’re planning to draw on our accessible investments gradually using The 4% Rule. 4% is not hard and fast, but it is a common strategy where you withdraw money from your investment portfolio each year to live on. It’s based on the idea that if your portfolio is invested in a Total World Index Fund/ETF, and you stick to a sustainable withdrawal rate, your money should last at least 30 years — or longer.
I’ve made my final KiwiSaver investment
Until 30 June 2025, the full $521 government contribution is still available, so I have already checked and confirmed that I have contributed $1,042 to my Investnow Foundation Series Total World KiwiSaver Fund.
After July 2025, I’ve decided that while I remain self-employed, I will no longer deposit money into my KiwiSaver account, knowing that I am effectively turning down $260 per year ($5 per week). If I returned to PAYE work, I would restart my contributions because of the employer benefits.
Instead, I’ll focus on building up our investments outside of KiwiSaver. I’ve added my $20 weekly KiwiSaver money to my other deposits into my Smart Total World Fund ETF instead. Note that my KiwiSaver and non-KiwiSaver funds are the same.
The key is that I am still investing the same amount for retirement.
We continue to be on track to have a nest egg to support us in our 50s, long before KiwiSaver and NZ Superannuation kick in at 65.
* In case you are new to The Happy Saver blog, Jonny and I have invested in ETF funds for many years. So, I want to make the point that I am not ceasing investing for retirement; I’m just altering course. Although we have access to our non-KiwiSaver investments, not a part of me would shoot myself in the foot by selling them off if a fit of YOLO were to overcome me.
What You Might Want to Consider
If you’re self-employed or just in a situation where you’re making voluntary contributions but receiving no additional contributions from an employer, here are a few things to think about:
This is the last year of the $521 government bonus — ensure you get it! Check how much you’ve contributed since 1 July 2024 and top it up to $1,042 before 30 June 2025.
You can either log into your provider and calculate your voluntary and employee contributions or log into MyIR and check there. Your provider will let you make a one-off payment online; you just have to locate their “how-to guide”. Don’t leave it till the last minute. Hurry!
Ask yourself: Would I still contribute to KiwiSaver without employer match or government contribution?
Suppose the answer is yes, great! KiwiSaver is still a great long-term investing tool for New Zealanders who realise that the government superannuation payment is unlikely to be enough, and they need to save for retirement themselves to bridge that gap. But if the answer is no, or “maybe,” then look at what else is out there and consider parallel investing. Having money invested outside of KiwiSaver gives you options.
You can build wealth outside of KiwiSaver, especially if, like us, you want to retire before 65. Investment platforms like Smart, InvestNow or Kernel offer the funds that I use (or similar), that mimic a KiwiSaver portfolio, but your money isn’t locked in.
This flexibility is crucial if you want to follow a drawdown strategy like the 4% Rule before your KiwiSaver becomes available.
Final Thoughts — I’m constantly adapting
KiwiSaver is still useful. For Jonny, nothing changes — he’ll keep contributing automatically and receiving the lower $260 bonus. His current KiwiSaver balance is ~$105,000; by my estimates, his balance should grow to about $310,000 by the time he turns 65.
For me, it’s time to adapt. The incentive isn’t what it used to be, and it no longer fits neatly into our early retirement plans. So, I’ll shift gears by putting my money into investments I can actually access when we need them, in our 50s. Even with no further contributions, my KiwiSaver balance will continue to grow, and when I turn 65, I’ll use it for its intended purpose, to top up our superannuation payment.
Collectively, we will continue to pour as much money into our investments that we have outside of KiwiSaver, and these alone should increase to over $1,000,000 by the time we turn 65.
* Future predictions are a best guess, of course, but this ChooseFI Future Value of Investment Calculator is helpful at least. Also worth sharing here is the new Retirement Navigator tool created by Sorted.
Sadly, I don’t think our government is done meddling with KiwiSaver, and this blog post is not about giving up on KiwiSaver. For most Kiwis who don’t think about their financial future, their regular contributions to KiwiSaver will be a welcome reward for a life of hard mahi and an essential help to them in retirement. However, it does concern me that these regular changes to KiwiSaver, and hints at more, erode my confidence in the scheme in general. For those reasons, I’d rather manage my investments.
As individuals, it's important to reassess any investment we have when the parameters change. Jonny and I do that with our money in general. We do our research and then set and forget, but that doesn’t mean we completely take our eye off the ball. KiwiSaver has changed, which prompted us to reassess, and I hope that my thought processes help you think about your KiwiSaver too.
