Shamubeel Eaqub: Simplicity Chief Economist on Kiwisaver changes in Budget 2025

Kiwisaver changes in this year's budget are expected to have long term benefits, but it might be a tough road for some to get there.

While the Government's halving its contribution,  its also gradually increasing the default rate from 3 to 4 percent.

Analysis from the Retirement Commission says the vast majority of salary and wage earners will eventually have higher retirement savings.

Simplicity Chief Economist Shamubeel Eaqub told Ryan Bridge these long term benefits will come with short term pain.

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Episode Transcript

Speaker 1 (00:00):
We've got changes to keep saver as promised. The default
key we Saver contribution will increase from three to four percent.
That falls on you, the worker or the employer, and
the government has its contribution to a maximum of two
sixty a year. The savings for the government two and
a half billion dollars over four years. Shama Bill Jacob
is economist at Simplicity with Me this morning, show me,

(00:20):
Good morning, Good morning. So, if you're for a young
person who's saving for their retirement, the net result of
all these changes are you better off or worse off
by the time you get there.

Speaker 2 (00:33):
You will be better off because you will have more
money in retirement, but you will have less money in
your back pocket on the way through.

Speaker 1 (00:40):
So does that mean over my lifetime am I better
or worse off? Presumably better off because if I'd spent
the money rather than saved it, I wouldn't get compounding returns.

Speaker 2 (00:51):
This is it. So the way it works is for
the average person, your q server contributions will increasp about
a thousand dollars a year, Your take compey will fall
by but seven hundred fifty dollars a year, and the
government's revenue will increase, but five hundred dollars a year.

Speaker 1 (01:08):
So anyone will lose. Anyone who will be paying in
the extra percent will lose seven hundred and fifty dollars
a year on.

Speaker 2 (01:14):
Average, the average person who's on earning seventy five thousand dollars.
That's the typical wedge for a QII.

Speaker 1 (01:20):
Okay, and how's that going to go down? Do you reckon?

Speaker 2 (01:24):
Well? I think that's the main worry about this thing.
So I actually like the fact that we're going to
increase contributions because we actually to increase even more over time.
Australia is going to twelve and a half percent. But
for people who are in mid middle or low income
that reduction in take compei might be a bit of
a concern, especially given the current living cost of living
crisis and people are still struggling. Right.

Speaker 1 (01:46):
The government's sweetener for Kiwi savor that's obviously getting the
chop are halved, but also means tested. This is a
retirement savings scheme, and where means testing the government contribution
a little ironic, we're not mean testing. That's soper too.

Speaker 2 (02:02):
Well, that was my thought. You know, it feels right
that we are means testing because you know, for people
like me who are earning good money, we're doing enough
to save our retirement. But it seems ironic that we
are very clear about means testing. This particular subsidy which
only doesn't you know, only cost about a billion dollars
this year, right, but super is going to cost us

(02:24):
twenty five billion dollars and it's increasing by one and
a half billion dollars a year. So there's this kind
of weird kind of political incoherence that's taking place. But
it's not surprising. We've been doing this for decades.

Speaker 1 (02:33):
Right, Yeah, it's and once Winston's gone, it'll all be sorted,
I'm sure. Shammi, thank you. Shamobo Jacob a Simplicity chief economist,
with me this morning.

Speaker 2 (02:44):
For more from Early Edition with Ryan Bridge.

Speaker 1 (02:46):
Listen live to News Talks it'd be from five am weekdays,
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