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New Zealand employers are bracing for adjustments to remuneration strategies as a mandated increase in KiwiSaver contributions takes effect, with economists predicting a potential dampening effect on pay rises. The default contribution rate rose to 3.5% on April 1, 2024, prompting debate over whether employers will absorb the cost or offset it through reduced wage growth.
When the change was announced, Treasury officials indicated they anticipated approximately 80% of the employer cost would be met by slower-than-expected pay increases. Kelly Eckhold, Westpac’s Chief Economist, echoed this sentiment, stating that overall remuneration levels are primarily driven by market supply and demand. “employers will pay a total level of remuneration in line with prevailing supply and demand trends in the market. Changing the allocation of what employees do with that remuneration is not likely to change that assessment,” Eckhold said. “Having said this, it will be impossible to know the counterfactual as we can only observe what employees are paid as opposed to what they might have been paid.”
The impact of the increased contributions extends beyond simple wage adjustments, according to Business NZ director for advocacy, Catherine Beard. She emphasized the broader cost of employment. “ACC charges, potentially fringe benefit tax, you’re going to have training costs, you might have uniforms… as someone who is hiring, you consider about what is the total cost to me and my business. So over time, any cost of employment does end up being factored into how much it costs to hire someone… superannuation KiwiSaver will be part of it.”
The timing of the increase coincides with a particularly challenging period for some sectors. Carolyn Young, chief executive of Retail NZ, highlighted the difficulties faced by retailers, particularly those in the apparel industry. Retail NZ data shows apparel sales experienced significant declines throughout the first half of 2023, falling by 5% in January, 9.1% in February, 8.5% in March, 7.8% in April, 4.4% in May, and 1% in June. “They’re really running by the skin of their teeth – there’s no fat in the business,” Young stated. “We do know that increasing KiwiSaver… is a place where, as a country, we demand to head.” She added that the contribution increase would likely lead to more cautious budgeting by employers, potentially resulting in smaller pay rises until the economy demonstrates clearer improvement. “It’s definitely a tricky time and definitely a space where employers will have to navigate their budgets really carefully around how they can recognise and reward staff alongside other increases that have been put in place.”
Concerns were likewise raised about the potential for lower-income earners to opt out of KiwiSaver to alleviate financial pressure. Craig Renney, chief economist and policy director at the Council of Trade Unions, and a Labour candidate in the 2026 general election, suggested that a 1% contribution could be substantial for those struggling with the cost of living. Renney proposed a system similar to Australia’s, where employers are responsible for superannuation contributions, with employees missing out on benefits if they choose not to participate, rather than having the cost deducted from their pay.
Despite these concerns, an ANZ survey indicated that a significant portion of KiwiSaver members intend to maintain or increase their contributions. The survey found that one-third of members planned to stick with the new 3.5% default rate, while 21% would contribute more if their employer matched it. Only 10% indicated they would request a temporary reduction in their contributions.
As of February 20, 2026, Westpac IQ published analysis by Brendon Cooper and Jimmy Yao on QBE’s FY26 reporting, noting underwriting strength and an upcoming Tier 2 refinancing. Kelly Eckhold, who joined Westpac in March 2023 after a long career at the Reserve Bank of New Zealand and the International Monetary Fund, authored an economic overview in October 2025, forecasting a delayed recovery with 1.2% growth for 2025 and 3% for 2026. The Reserve Bank of New Zealand has not yet announced any changes to the Official Cash Rate following the KiwiSaver contribution increase.
