Keeping up with your KiwiSaver
by Sarah Kelsey
In its most basic form, KiwiSaver is a voluntary savings scheme for all New Zealanders! You can opt into the KiwiSaver scheme at any age to begin building up a sum of money to be withdrawn at 65 years old (retirement) or for your first home (conditions apply). When I say “building up”, that means you are investing your money and the type of investment depends on the fund you’re in which we will get into a bit later. Investing your money means your contributions (money you + your employer pay each pay cheque) are put into a range of things such as shares, bonds, bank deposits and property. But don’t worry, you’re not in control of organising all of that. That is the role of your KiwiSaver provider.
Once you choose which fund you make contributions to (defensive, conservative, balanced, growth, aggressive), the provider controls where your money goes. That’s why it’s so crazy to think people don’t have the proper education on what KiwiSaver is! It’s literally YOUR money – you deserve to know what’s happening with it! Past this point, it’s generally smooth sailing (although let's not forget COVID…), so sit back and watch your retirement grow baby! Unless of course you withdraw that money for your first home deposit which you absolutely can do if you’ve been a KiwiSaver member for at least 3 years, intend to live in the home and keep at least $1,000 within your account. You may also be eligible for a KiwiSaver HomeStart grant! Now with the easy stuff out of the way let’s get into the technicalities…
Who are the mysterious people I refer to as providers? Like I said, once you choose your fund, they manage your money and investment within that scheme. BUT your provider (like your fund) is not permanent – you have the authority to change these at any time. The provider controls where your money is invested while you are with them and if you choose to change, BOOM control is handed over. You ultimately always have the power to change anything in your scheme (fund, provider, contributions etc). If you were enrolled automatically by your employer at 18, you would have been put into a default scheme (default scheme examples include all the main banks; Westpac, ANZ, ASB, BNZ etc. Which is most likely where you will be put).
I was with Westpac at the time of my enrolment so was automatically put with my bank, they then sent me out an information pack which I threw away because why would I care? Nobody explained the importance of this to me. But I am telling you that this is important, and you should care! There is absolutely nothing wrong with keeping your default provider, and if it is with your bank, you will be able to conveniently view and contribute to your KiwiSaver through an app. All I am saying is that there are other providers out there if you have certain needs or interests. For example, some providers have lower fees, historically higher returns or only invest in certain funds (e.g. no tobacco or weapons associated investments). There is an option for you to compare providers easily on the sorted.org.nz website with one of their tools. The benefit of having a choice over your provider, in my eyes, means you are involved in where your money is going, making you feel more in control of your future.
Remember we spoke about this earlier; the money that you and your employer pay to your KiwiSaver account each payday. That’s right, the big boss has the responsibility to match your contributions. As a hard-working employee, you have the choice to contribute 3%, 4%, 6%, 8% or 10% of your gross (before-tax) income to your KiwiSaver - so many options! If you want to take it one step further, you can also make voluntary lump-sum payments to your KiwiSaver through your provider or IRD.
Rewinding back to the employer contributions thing; they have the obligation to contribute at least 3% meaning that’s probably what you’ll get unless you have a super cool employer! Just when you thought it couldn’t get any better, the Government has your back and will also make an annual contribution of up to $521 if you are a contributing member and 18 years old+. To get the full $521 from the govt, you must contribute $1,042.86 or more of your personal cash! (meaning just make sure you get $1,042.86 in there by 30 June each year and you’ll be sweet). Those personal contributions can include the money from your wages OR your own personal payments.
Now that we know what it is and how we can contribute to our KiwiSaver accounts, what determines how our money is invested? When you opt in to KiwiSaver you would’ve been asked to choose which fund your money is put towards. But you and I both know we were like WTF does that mean? NEXT, and either didn’t fill it in (which means we were put into balanced/conservative) or put whatever. I remember feeling stupid for not knowing and threw myself into conservative! Your fund determines the level of risk associated with your investments. For example, I personally am in a growth fund which is generally a medium to high-risk fund where a majority (63%-90%*) of my money is invested in growth assets. If you were in a conservative fund, a minority (10%-35%) of your money would be invested in growth assets making it a lower risk fund. Both will accumulate money over time, one may be faster, the other slower but they also have different risk factors.
Take COVID for example – I would have lost a lot more money from my KiwiSaver fund than someone in a conservative fund because that is simply the risk you run investing in a growth fund (A.K.A having a high-risk appetite). This same risk is associated with investing outside of a government scheme, which we discuss later. Simplicity, a not-for-profit fund manager who has appeared on a few podcasts has outlined timeframes to stay in specific funds. These are outlined to give the investor an idea of how long you should think about staying in a fund to align with your KiwiSaver goals. I assume this will be quite similar across all funds but would be worth doing your own research if you want to find out more.
Growth Fund – 9+ Years
Balanced Fund – 6+ Years
Conservative Fund – 3+ Years
Personally, I think (not financial advice people) you should get amongst! I stalled my option to join KiwiSaver due to family members telling me it’s a scam – until I got educated. You have the opportunity to save not only your own money but your employers and the governments! Although if you are skeptical, I recommend doing your own thorough research.
*DISCLAIMER: I am not an authorised financial advisor, please seek professional advice for your personal situation.