Kiwisaver
Kiwisaver is the investment scheme implemented by the government to help kiwis save for their retirement (and first house). There are a lot of misconceptions about, which has even caused some kiwis to opt out completely – which in our view is a big mistake!
This guide will help you understand the basics, and some of the misconceptions to ensure you aren’t missing out on a significant amount of money!
Please take a few minutes to read through this guide. As Kiwisaver is an investment product, we highly recommend you have a read of our basic investment guide here as well
Which fund type should I be in?
Most providers will have variations of the following funds. From lowest risk, and lowest return to highest risk and highest return:
- Cash
- Conservative
- Moderate
- Balanced
- Growth
- Aggressive Growth (some)
There are a few factors which go into choosing the best fund for you. As a general rule, if you’re young you should be in a growth or aggressive growth fund. This is because you have a long time until retirement, and as such fluctuations in value are less of an issue.
The exception is if you are looking at using the Kiwisaver withdrawal to buy your first house soon. In this case it is worth switching to a safer, lower risk fund to ensure you won’t see a sudden drop in your Kiwisaver prior to purchasing.
The closer you are to retirement, and needing your Kiwisaver funds, the less risk you should be taking with your fund.
Often providers will have a standard program which will automatically adjust your fund type based on your age. These start from high growth at a young age, to conservative/cash as you get to retirement age.
You can find a useful calculator here to determine which fund suits you best.
Which Provider?
There are a range of Kiwisaver providers out there, and with pushy commission driven sales tactics from some it can be hard to decide. It is of course good to start with previous returns (after fees!). However, there’s a guiding rule here – Past performance is not a guarantee of future performance!
In the world of investing, very few funds manage to consistently beat the market return (share market) in the long term. Even if they have been one of the top performers over the past 5 years, in the next 5 they could well be the worst.
Given this it’s hard to provide any hard and fast recommendations. However, if a fund is consistently performing worse than the average, that is certainly a red flag.
Most providers in Kiwisaver are ‘Actively Managed’ funds, which means they have people making decisions regularly about where they are invested in. The goal being to perform better than their competitors, and the market on average.
An alternative is an index fund, which simply tracks the share market and as such has much lower fees. For more information on these click this link here.
Fees:
Fees vary according to the Kiwisaver provider, the fund type and how the fund is managed. Fees are a bit of a hidden cost because you see your Kiwisaver balance increasing, but not the fees taken out.
You will however see this figure in your funds annual performance report. For some it may be surprising! In addition, there are often account fees which are relatively small ($1-4 per month). Some providers have now abolished these.
While some people give little thought to fees, they can have a very large impact on your balance at retirement!
The main fees are charged as a percentage of your total Kiwisaver balance. With a small balance in your Kiwisaver you will see little difference because of fees, however the higher the balance, the more you lose (for the same service!). As you near retirement you could be paying thousands of dollars annually in fees
To show the large difference between providers, here is the range of fees (excluding membership fees) charged by fund type*:
| Fund Type | Minimum | Maximum |
|---|---|---|
| Cash | 0.27% | 0.9% |
| Conservative | 0.4% | 1.23% |
| Moderate | 0.58% | 1.21% |
| Balanced | 0.58% | 1.48% |
| Growth | 0.58% | 1.47% |
| High Growth | 1.15% | 1.59% |
See our comparison of fees for all the main providers here
*As of 24/02/2020
Employer Contribution:
If you are in Kiwisaver, your employer must also contribute a minimum of 3% of your gross wage. This is in addition to your contribution. If you choose to contribute a higher percentage yourself, then your employer is under no obligation to match this. They only need to meet the minimum 3% contribution.
Government Contribution:
Currently the government will add to your contributions by an additional 50% annually. This is capped at a total of $521.43, which would amount to you contributing $1042.86. You should absolutely ensure that you receive the maximum contribution, as it is a free 50% bonus!
It’s important to note that not everyone will automatically reach this threshold by making minimum contributions especially if you aren’t working full time. In this case you can either up your employee contribution rate, or do a one off top up of your Kiwisaver account. You can do this through your provider or through IRD. See this link here for some further information.
Here are some examples of how much you would contribute, and the matching government contributions by wages:
$18.90 – Minimum Wage
| Weekly Hours | Annual Income | Your Contribution | Govt Top Up | Shortfall |
|---|---|---|---|---|
| 20 | $19,656 | $589.68 | $294.84 | $226.59 |
| 25 | $24,570 | $737.10 | $368.55 | $152.88 |
| 30 | $29,484 | $884.52 | $442.26 | $79.17 |
| 37.5 | $36,855 | $1,105.65 | $521.43 | N/A |
| 40 | $39,312 | $1,179.36 | $521.43 | N/A |
$22.00 Per Hour
| Weekly Hours | Annual Income | Your Contribution | Govt Top Up | Shortfall |
|---|---|---|---|---|
| 20 | $22,880 | $686.40 | $343.20 | $178.23 |
| 25 | $28,600 | $858.00 | $429.00 | $92.43 |
| 30 | $34,320 | $1,029.60 | $514.80 | $6.63 |
| 37.5 | $42,900 | $1,287.00 | $521.43 | N/A |
| 40 | $45,760 | $1,372.80 | $521.43 | N/A |
$25.00 Per Hour
| Weekly Hours | Annual Income | Your Contribution | Govt Top Up | Shortfall |
|---|---|---|---|---|
| 20 | $26,000 | $780.00 | $390.00 | $131.43 |
| 25 | $32,500 | $975.00 | $487.50 | $33.93 |
| 30 | $39,000 | $1,170.00 | $521.43 | N/A |
| 37.5 | $48,750 | $1,462.50 | $521.43 | N/A |
| 40 | $52,000 | $1,560.00 | $521.43 | N/A |
How much should I contribute?
As you saw above, you should at a minimum contribute enough to ensure you get the full free government contribution. Beyond that it becomes less clear.
For people who struggle with saving money, having a higher contribution level is a great idea. This is because the money is already gone and has been saved before you have a chance to do anything with it. The money goes out like a small extra tax, that will come back to you years later in the form of a much higher amount
If you’re able to regularly put aside money to save anyway, then it may be more worthwhile for you to have your own separate investment fund(s). The main reason for this is you will have full control of your investment, instead of only withdrawing at 65 (or first home). See our guide on investing here for more information