That means you’re probably in a default fund, and may want to change.
Like most of us, if you didn’t specifically choose a provider for yourself when you first signed up for KiwiSaver, Inland Revenue allocates you to one of nine default KiwiSaver providers.
This is to get you started, until you decide how you want to invest your contributions. The problem is, most of us haven’t touched it since, because we didn’t know we were supposed to.
By the way
Provider = the company that looks after your money. Each provider has a number of funds (usually 3-5).
Fund = Where the provider pools all their client’s KiwiSaver money, and invests it in various different places (eg shares, property, term deposits, bonds).
A default fund is also known as a conservative fund. This means your money is invested conservatively (i.e. low risk = potentially lower reward). Over 90% of Kiwis are in this boat.
It’s not necessarily the best idea to be in a default fund.
Conservative funds and some of the default providers have relatively low rates of return. That means your KiwiSaver money may not be working hard enough for you, compared to your risk profile.
Over a lifetime this could mean missing out on thousands (potentially hundreds of thousands) simply because no one gave us the advice to change it.
The other issue with being placed in to a default fund, is that we are automatically put on the highest Prescribed Investor Rate (PIR) of 28%. This rate determines how much tax we pay on the investment profits out KiwiSaver accounts make.
For many of us, this 28% may be the incorrect tax rate, so we are paying more than we need to. Worst of all, this isn’t one of those “tax refund” situations. Pay too much tax here, and the money is gone. This is what is known as a “final tax.”
So, you’ve figured out you may be in a default fund… where to from here?
Which fund type you decide to go into depends entirely on your circumstances:
A younger person may be more comfortable with risk, as they don’t plan to withdraw their KiwiSaver money until they’re 65 (They’re in it for the long haul).
At the same time, they may need that money soon for their first home, and therefore might not be willing to risk it in a high growth fund.
There are fund types to suit every New Zealander, and you have the ability to customise them to reflect your attitude towards risk.
If you’re unsure, or just want a bit of help to figure out things such as your prescribed investor rate, we have a team of financial advisers on hand to help you choose the right one. The best part, their help is absolutely free.