Tax-free KiwiSaver hands 87% of the gain to the biggest balances

ACT’s KiwiSaver pitch is elegant. Stop taxing returns inside the scheme, let them compound, and watch retirement balances balloon. The problem is who funds it. Scrapping the government contribution to pay for tax-free earnings takes a flat subsidy away from everyone and replaces it with a benefit that grows with the size of your balance. That is a defensible choice, but it is a choice about what KiwiSaver is for, and voters should make it with their eyes open.

The maths Seymour is selling

At ACT’s campaign launch, David Seymour promised to scrap tax on KiwiSaver earnings and end government contributions, letting savers “get the full benefit of compounding returns instead of taxing you every step of the way.” His headline example is a 20-year-old builder on $60,000 who would retire with an extra $209,486.

ACT’s own costings put the earnings exemption at $4.082 billion over four years, plus $904 million for non-KiwiSaver super schemes. Killing the government contribution for members with employer contributions saves $2.59 billion, leaving a net cost of $2.396 billion.

The builder is the best-case saver. The NZ Herald’s analysis found a 50-year-old office manager on $80,000 gains just $20,878 by 65, a tenth as much, and warned the policy risks working as a tax cut for people who already hold substantial capital.

Who actually collects

Green-commissioned modelling by Victor Consulting, reported by RNZ, puts numbers on that. The top 20% of households by income would take 63% of net benefits in the first four years, averaging $3800 each. The bottom 20% would get 1%, about $40. The 15% of savers with balances over $80,000 would collect 87% of the net benefit, while the 48% with balances under $20,000 would lose an average $340. Green co-leader Chloe Swarbrick calls it “welfare for the wealthiest.”

The Greens commissioned the work, so treat the framing with caution. But the direction is mechanical, not ideological. A tax exemption on earnings is worth more the bigger your balance and the longer you have left. A flat, capped subsidy is the opposite.

A subsidy already cut in half

Low-balance savers have been here before. Budget 2025 halved the matching rate from 50 cents to 25 cents, capping the annual top-up at $260.72, and introduced a $180,000 income cap. In 2025, Treasury told Cabinet there was “little evidence current subsidy incentivises increased retirement savings”.

That may be true of behaviour, but not of balances. The Retirement Commission’s 2025 analysis found the contribution could make up around 20% of a low-income earner’s balance versus under 5% for high earners. ACT would finish off a subsidy that matters most to exactly the people least likely to benefit from tax-free compounding.

What the defenders get right

This is not a cynical giveaway. New Zealand’s tax-tax-exempt model genuinely drags on long-term accumulation, and the case for fixing it is serious. ACT argues that “anyone with a bigger balance will gain more in dollars, but the gain as a share of their savings is similar across incomes”. Koura founder Rupert Carlyon calls it “the strongest of the KiwiSaver policies announced so far” and argues the government contribution has been “hollowed out” into irrelevance. Even Simplicity chief economist Shamubeel Eaqub, a critic, accepts the tax design needs reform. He just argues relief on contributions, rather than earnings, would do more for lower earners, and that decoupling employer and employee contributions would help those who cannot afford to put money in themselves.

That is the real fault line. Tax-free earnings help people who can already afford to save. Most of the scheme’s members are not there yet. In 2025 the FMA reported an average balance of $36,349 across 3.39 million members, with withdrawals up 16.6% to $5.9 billion.

Mass scheme or tax shelter

For business, the question is practical. Employers are already absorbing legislated contribution rises to 4% from April 2028. Fund managers would see larger, faster-growing balances concentrated at the top of the book. Payroll teams need to know whether they are administering a universal savings habit or a compounding vehicle for the already well-off.

There is a centre-right case for ACT’s direction: lower tax on capital, reward thrift, stop the state skimming returns every year. But pairing it with the removal of the one broad-based incentive turns a growth policy into a transfer from small balances to large ones. A smarter version would phase the exemption in while keeping a basic contribution, or start with Eaqub’s contribution-side relief. If ACT holds the balance of power after the election, expect that trade-off to be the price of the deal.

Sources

• RNZ: Would KiwiSaver tax change just help wealthy? (2026-10-22)
• 1News: ACT vows to scrap tax on KiwiSaver earnings, end Govt contributions (2026-10-04)
• Interest.co.nz: ACT promises to remove tax on KiwiSaver earnings & make it a ‘productivity election’ (2026-10-04)
• NZ Herald: KiwiSaver boost: Will Act’s plan work? The Bottom Line checks it out (2026-10-05)
• Treasury: Cabinet Paper CAB-25-SUB-0126 Budget 2025 Package – The Growth Budget (2025-04-11)
• Retirement Commission: KiwiSaver Government Contribution Distributional Analysis 2025 (2025)
• FMA: KiwiSaver Annual Report 2025 (2025)