If you’ve been contemplating your first home purchase or preparing for retirement, KiwiSaver stands as a compelling investment opportunity for your future.
KiwiSaver makes up a big part of the money culture in New Zealand. As of June 2023, about 3.3 million individuals were enrolled in the government scheme. But how does it work? What provider and fund do you go with?
If you’re in the middle of figuring out KiwiSaver, you’re in luck: we’ve compiled all the information and resources you need here.
What is KiwiSaver?
KiwiSaver is a voluntary savings scheme to help with saving for retirement. While retirement is the primary purpose behind the scheme, you are also able to withdraw your savings early to purchase your first home. Under limited circumstances, you may also be able to withdraw your savings early for financial hardship and health reasons.
Inland Revenue acts as the central administrator for the scheme, and there are various scheme providers (the most popular being banks) that individuals can choose to opt into. You can either make regular contributions from your work pay (at rates of 3%, 4%, 6%, 8% or 10%), or contribute directly to your scheme provider. Your KiwiSaver provider will then invest your savings for you at the fund you agreed to.
Once you reach age 65, you will be able to withdraw funds from your KiwiSaver account and enjoy retirement.
Why should I get a KiwiSaver?
There are a few reasons why KiwiSaver is a positive investment to make.
Your employer is required to contribute to your KiwiSaver as well. Their contribution must be a minimum of 3% of your before-tax pay. It’s important to note that your employer does not have to contribute if you’re eligible to withdraw your funds. Otherwise, opting into the scheme gives you free contributions into your savings in this way.
The government is also required to contribute to your KiwiSaver. You can receive this contribution if you mainly reside in New Zealand. If you’re enrolled with KiwiSaver, the government can contribute up to $521.43 a year. To get this maximum contribution, you must have paid at least $1042.86 towards your KiwiSaver from 1 July to 30 June. Since you’ll likely be putting money towards your KiwiSaver through your work, this is another way to get free contributions.
Further $10,000 first home grant
Having your KiwiSaver available for your first home purchase is already a big help. What you might not know is that you can receive a further grant of up to $10,000 from Kāinga Ora towards your first home purchase as well. These first home grants have a few requirements, one of which is that you must have been contributing to KiwiSaver for at least three years. See if you’re eligible for this grant here.
Building good money habits
Finally, those weekly contributions to your KiwiSaver can act as practice for building good money habits. Discipline and motivation can be crucial components of budgeting, but having your KiwiSaver contributions be automated and at a set rate can help fix that problem. If you’re interested in how to budget, check out our guide to budgeting here.
How do I set up my KiwiSaver?
Okay, so it sounds like a good idea to opt into KiwiSaver. How do you do it?
Luckily, it’s not too difficult to get started. Are you a New Zealand citizen or resident? Good news – you qualify to join KiwiSaver. However, you cannot join the scheme if you have a temporary, visitor, work or student visa. Most employees are enrolled automatically if they’re New Zealand residents. If you’re eligible, then your employer will provide you with KS2 and KS3 forms. These tell the employer what rate you’d like to contribute to KiwiSaver.
In other words, your employer will likely do the heavy lifting in opting you into the scheme. For more information on the process of opting an employee into KiwiSaver and the various forms required, this page by Inland Revenue goes into more depth.
What KiwiSaver provider and fund is best for me?
You don’t need to have a KiwiSaver provider when you join through your employer. When you join, you’ll automatically be enrolled to your employer’s chosen scheme or be allocated to a default one. However, it’s a good idea that you pick a provider that fits your financial situation. You can change your KiwiSaver provider at any time by applying to the provider directly.
There are generally five types of KiwiSaver funds offered by most providers: defensive, conservative, balanced, growth and aggressive. Like the names suggest, each fund type yields a different amount of growth and risk. For example, although an aggressive fund might have more potential to grow, it may fluctuate more often due to the riskier investments it’s taking.
What you’ll want to do first is figure out what fund you want. Sorted has a great resource here for finding the right KiwiSaver fund for you.
Following that, you’ll want to compare the fund you’ve chosen between the different providers. You can do that here. The differences you see between the providers should help indicate which one you should personally go with.
Here are a few things you may wish to consider when comparing providers:
- How old are you? How much time do you have left to save until retirement?
- Do you currently intend to use KiwiSaver for purchasing your first home or for retirement
- How risk-averse are you?
- What quality of life are you seeking in retirement? How much do you need to retire with?
- How expensive are the fees of the provider? What is the value for money like?
Numbers can also be a good indication of which KiwiSaver funds are appealing to the most people. According to this article, the following KiwiSaver funds had the greatest number of members as of March 2023:
1. ANZ KiwiSaver Growth Fund
2. Westpac KiwiSaver Conservative Fund
3. ASB KiwiSaver Growth Fund
4. ASB KiwiSaver Conservative Fund
5. Westpac KiwiSaver Growth Fund
6. Fisher Funds KiwiSaver Growth Fund
7. ANZ KiwiSaver Balanced Fund
8. ANZ KiwiSaver Balanced Growth Fund
9. Westpac KiwiSaver Balanced Fund
10. ASB Balanced Fund
How much should I contribute to my KiwiSaver?
As mentioned above, you can contribute to your KiwiSaver from your paycheck at the following rates: 3%, 4%, 6%, 8% and 10%.
According to a graph by Generate, the difference between a 3% and 10% contribution rate at retirement can be as much as $557,000. This projection was done based on a 30-year-old with an existing balance of $15,000, an annual salary of $100,000 and an Aggressive Growth Fund. See more details on the graph here. As you can see, the difference in contribution rates can result in big results along the line.
But not everyone can (or should) be contributing 10% a week. The answer to how much you should be contributing to your KiwiSaver boils down to two questions: how much do you need for your retirement and can you afford to contribute without compromising your quality of life? Figuring out these questions will help you determine how much you can comfortably contribute, and the pace in which you’ll need to do it in.
At the very least, you should be contributing at least 3% to get those employer and government contributions. This article from Kōura can help shed some light on what contribution rate is right for you.
Okay, that was a lot of info. Let’s sum up KiwiSaver:
- KiwiSaver is a savings scheme purposed for your retirement and first home purchase.
- The benefits of employer and government contributions, first home grants and budgeting practice make KiwiSaver a worthy investment.
- If you’re a New Zealand citizen or resident, generally your employer will handle your enrolment into the KiwiSaver scheme.
- Depending on what your financial goals are, a variety of KiwiSaver providers and fund may be the best fit for you.
- Furthermore, your financial goals can also help determine how much you should be contributing.
If your first home purchase or retirement is making your finances difficult, a personal loan from Pioneer Finance can help. Get in touch with the team and we’d love to discuss what finance options are right for you.