As always, the content below is meant as general information to give you a better understanding of this topic, and is subject to our terms and conditions. You should seek appropriate personalised financial advice from a qualified professional to suit your individual circumstances.

What is it?

KiwiSaver is New Zealand’s retirement investment initiative, and has a current membership rate of around 3 million people.

Most people put a small percentage of their wages away into a fund each time they are paid, and this money is then ‘topped up’ by both their employer, and the Government.

That money is then invested in various places by their KiwiSaver Provider, which manages their money. The provider will choose investments from all around the world, including New Zealand, with the goal of growing their client’s nest-eggs over time.

In return, these providers charge a fee. Some take more than others.

You can withdraw your KiwiSaver money at age 65. However there are some other times where you can access the funds, for example when buying your first home.

Why is it important?

Currently, KiwiSaver isn’t compulsory in New Zealand, although many people think it should be.

It started because us Kiwis aren’t always the best at saving, or planning ahead for our future. Lots of people were hitting retirement with hefty debt (for example mortgages) and no savings, expecting to live off superannuation (the ‘pension’) which isn’t all that much.

Also, we don’t know what the pension will look like in 10, 20, or 30+ years from now. So creating your own nest-egg is a great idea.

Contributing to KiwiSaver also has a couple of key monetary benefits. First, if you are contributing the minimum amount of 3% - then your employer must match this. Second, the Government will also make a contribution of up to $521 per year to your KiwiSaver account.

Providers & Their Fees

There are roughly 25 different KiwiSaver providers available to the public. 5 are major banks, and the rest are what we call ‘specialist providers’.

When choosing your KiwiSaver provider, it is good to consider:

• How much they charge in fees (both annual membership and performance fees)

• How their funds perform compared to their competitors (i.e. how good they are at making investment decisions - although this is never guaranteed, and shouldn’t be the only factor you consider)

• Whether their investment strategy fits with your values/beliefs. For example some people don’t want their money invested in companies with inhumane or bad environmental practices.

If you never specifically chose a provider, chances are your KiwiSaver money is sitting with a ‘default provider’ chosen by the Government (90% of people are in this boat).

Your contributions will have been automatically invested in the scheme’s conservative investment fund, this is the least risky type of fund, but also means a potentially much lower return. Over a lifetime this could mean missing out on hundreds of thousands of dollars from investment earnings.

Providers usually charge two sets of fees.

• A fixed membership fee, which ranges from $0 to $60 per year

• And on top of that, a fee that is a percentage of your account balance, which varies widely between providers.

The varying fees between providers may only seem like 0.5% here and there, but by the time you’re 65, this can add up to be hundreds of thousands of dollars difference, depending on which provider you go with.

Fund Types

Broadly speaking, there are five categories of funds offered by KiwiSaver providers - Defensive, conservative, balanced, growth and aggressive.

Where you allocate your money is entirely up to you and depends on your circumstances.

Popular thinking is that while riskier funds tend to rise and fall more dramatically, over time they usually grow more too.

Many people choose their fund type based on how long they think it will be before they make a withdrawal, and their attitude towards risk. For example, a 35 year old who plans to withdraw their KiwiSaver money at age 65 (in 30 years) will likely opt for a higher-risk fund. Whereas someone that plans on making a KiwiSaver withdrawal for their first home in the next 3-5 years, may instead go for a more conservative fund - because they can’t afford to risk their balance dropping too low right when they the need the money.

PIR Tax Rate

The money you earn through your KiwiSaver investments is taxed at different rates depending on your income.

Unfortunately, this isn’t one of those ‘tax refund’ situations. if you don’t declare the correct tax rate, you could be paying too much, and you will not be able to claim it back.
PIR tax isn’t quite as simple to workout as income tax. It is based on your taxable income for the past two years, and …..

Contributions

Unless you are going to contribute to KiwiSaver manually, the minimum contribution rate is currently 3% of your salary. If you opt-in to KiwiSaver, your employer must match this 3% also.

You can choose to contribute more, for example 4%, 6%, 8% or 10% - but your employer is still only obligated to contribute 3% (unless they’re feeling extra generous).

You can change your contribution rate at any time. If you are contributing 6% but are finding things are getting a bit tight, it’s no problem to move back down to a lower contribution rate.

You can also take a ‘savings suspension’ - where you stop contributing to KiwiSaver for up to one year. This will give you a bit more cash in the short term, but means you will miss out on your employer and potentially the government’s contributions over that time.

Checklist

1. Select a KiwiSaver provider (there are about 22 to choose from)

2. Select your fund-type

3. Choose the correct PIR (tax rate)

4. Select what % of your income you would like to contribute each pay

5. Set and (mostly) forget

If it’s all a bit hard and you’d like a hand to get your KiwiSaver sorted, click the button below and we’ll help put you in touch with an adviser who can help.