This article was originally published on Stuff on 9 September, 2026.
Some marriages simply don’t work. KiwiSaver has one that should end: the link between what an employee can afford to contribute and whether their employer contributes at all.
The moment an employee stops contributing, or must take a savings suspension, their employer is currently free to stop too.
This can have a brutal impact on people already under serious financial pressure.
The fix rests on three simple principles: employer contributions should be compulsory, they should be genuinely additional to salary, and they should flow as fully as possible into the employee’s retirement.
New Zealand falls short on all three.
Encouragingly, momentum behind improving KiwiSaver is growing, particularly as we approach the 2026 election. There’s disagreement about the precise destination and the pace of getting there, but a broad consensus is forming around the direction: New Zealanders need to save more to support longer retirements and reduce the growing pressure an ageing population will place on a smaller proportion of working-age taxpayers.
The number of New Zealanders aged 65 and over is projected to reach one million by 2029. Against that backdrop, the Retirement Income Interest Group of the New Zealand Society of Actuaries has concluded that, under current NZ Super settings, a 5% employee contribution matched by 5% from the employer is a suitable default – not eventually, but now.
The actuaries may well be right, but a higher default rate means nothing to someone contributing zero. That’s the case for 30% of working-age KiwiSaver members, according to the FMA’s latest KiwiSaver Annual Report. Under the current rules, many of them also lose their employer’s contribution entirely the moment they stop.
I’d argue it’s rare for people to stop contributing because they’ve suddenly decided retirement no longer matters. They stop because the demands of today become more urgent than the needs of tomorrow.
The Financial Services Council’s latest Financial Resilience Index shows just how narrow the margins are for many households. One in four respondents said they could sustain their current lifestyle for less than a month without income. Only 55% could meet an unexpected $5000 expense within a week without going into debt, while 65% worry about money at least monthly.
When mortgage or rent payments, the power bill or the groceries have to come first, pausing KiwiSaver can be an understandable short-term decision. But it’s a decision that can punish people four times over: their own contributions stop, their employer’s stop, some or all of the annual government contribution slips out of reach, and then every dollar not invested loses years of compounding growth.
A temporary financial squeeze becomes a much larger, permanent hole in someone’s retirement savings.
That flaw is already being recognised. The Financial Services Council has proposed that lower-income employees – for example, those earning under $60,000 per year – be allowed to contribute 2% while their employers continue paying the full compulsory rate as it rises to 4%, 5% and eventually 6%. That proposal is based on an important idea: flexibility for the employee should not become an escape clause for the employer.
Other countries have made the employer’s responsibility much clearer, with Australia providing the clearest comparison. There, employers must contribute 12% of ordinary earnings to superannuation, independently of any voluntary contribution an employee chooses to make. Norway also requires employers to provide occupational pensions, while Singapore and Canada make retirement contributions a compulsory part of earning an income rather than leaving them primarily to individual choice.
We shouldn’t copy any one system – KiwiSaver should stay uniquely Kiwi. But those systems share a conviction New Zealand should adopt: retirement contributions are one of the basic costs of employing someone, not a benefit contingent on that employee finding room in their household budget.
At Milford, we contribute 5% regardless of what the employee contributes. We consider this part of our responsibility as an employer, and not a responsibility that disappears if an employee hits a rough patch.
New Zealand does not need to reach the higher contribution rates of other countries overnight. Most of them took decades to get to where they are. But some immediate reforms are much simpler, and uncoupling employer and employee contributions is not the only one. An employer contribution must also be genuinely additional.
Retirement Commission research found that 45% of employers use some form of total remuneration arrangement for at least some staff. In practice, this means the employee can end up funding what is labelled the employer’s contribution through their own remuneration. It is salary sacrifice by another name.
Raising compulsory contribution rates achieves far less if employers can simply absorb the increase into existing pay packages. We improve the headline number without necessarily improving the employee’s position.
And there’s a further leak. Even genuinely additional employer contributions are taxed before they land, through ESCT. Tax settings always involve trade-offs, but taxing retirement savings before they’re even invested works directly against the outcome we say we want.
It’s not radical to say employer contributions should be compulsory, genuinely additional, and directed as fully as possible into retirement savings – it’s simply what KiwiSaver was always meant to be.
There will be periods when money is tight and contributing at the full rate is unrealistic. A well-designed retirement system will recognise that without abandoning the people it’s meant to serve.
When employees need to pause, their employers should not be allowed to pause with them.
This is one KiwiSaver marriage that has run its course.
