“If this trend continues, we risk a stark inequality between the contributing and non-contributing members of our national retirement scheme.
“The rising number of these non-contributing members may well reflect the economic headwinds currently impacting New Zealanders. The rise in hardship withdrawals is also noticeable.”
Members withdrew $444 million from their retirement savings for hardship purposes during the year – 68% more than in 2023/24,
The sobering situation comes as Treasury and Inland Revenue ring the alarm bells increasingly loudly over the rapidly rising cost to the state of New Zealand Superannuation, as the population ages.
The fall in the use of KiwiSaver also comes as the Government tries to gently push people to save more for their retirements.
From April 2026, the default contribution rate for employees and employers will rise from 3% to 3.5% of a member’s salary/wages. From April 2028, it will rise again to 4%.
KiwiSaver members will be able to apply to keep their contributions rates at 3% or continue to choose to contribute at higher rates.
New Zealand First is campaigning on making KiwiSaver contributions mandatory. It wants contribution rates to rise to 10% and for this to be coupled with tax relief. However, the cost of this tax relief is estimated to be completely unaffordable.
In Australia, participation in a superannuation scheme is compulsory. The minimum contribution rate is 12%.
Coming back to the latest figures on KiwiSaver, the FMA said that of the members who weren’t contributing, 111,369, or 8%, had temporarily suspended their contributions under a provision that allows members to do so for between three months and a year. This was an increase of 19,147 from last year.
Putting those on saving suspensions aside, 2024/25 was the first year in which over half of KiwiSaver members with default providers (which they didn’t select themselves) didn’t contribute.
The FMA put the spotlight on these default providers, saying they had a role to play in lifting contributions.
“For default KiwiSaver providers, there are obligations to engage with default members throughout their retirement savings journey, including during times of volatility, and near the end of a member’s savings suspension,” Barrass said.
“Sharing information with members about their contribution options and planning tools available to them better enables people to plan their long-term retirement goals.”
Looking at the scheme more broadly, it continued to steadily grow in 2024/25, with funds under management rising by 10% to $123.1 billion.
This growth was driven by record contributions of $12.2b from members, employers and the Crown, supported by $6.4b in investment returns.
“While returns fluctuate with market conditions, they have been positive in eight of the past 10 years, highlighting KiwiSaver’s capacity to grow member balances over time,” the FMA said.
“This underscores the value of staying invested and the power of long-term compounding.”
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.