What is KiwiSaver?

The New Zealand Government set up KiwiSaver in 2007 as a voluntary savings scheme to help New Zealanders save for retirement. From the perspective of retirement saving, you can think of KiwiSaver as a way to create a nice retirement nest egg for post-work life. Compared to many other available investment options, KiwiSaver offers a relatively low-risk investment.

How does KiwiSaver work?

At your own discretion, You may choose to contribute from 3% to 10% of your salary (before tax) to your KiwiSaver account. Your employer will also contribute a percentage of your gross salary which is usually 3% at least.

In addition to your employers’ contributions, the government also gives an annual contribution.

KiwiSaver invests your savings on your behalf. Inland Revenue will automatically assign you to one of default nine KiwiSaver schemes if you don’t choose a provider.

You can choose to join KiwiSaver either through your employer or through a KiwiSaver provider at any time – but once you do, you can’t opt out.

Who can join KiwiSaver?

You can join KiwiSaver so long as you are meet the following requirements:

You are a resident of New Zealand or allowed to stay indefinitely in New Zealand.
Reside permanently in New Zealand.
You can not join if you are on a temporary or working visa

What are the benefits of joining KiwiSaver?

KiwiSaver helps you save easily for retirement. The range of benefits makes it even more worthwhile. Here are a few reasons why you should save for the retirement you want with KiwiSaver.

A 3% Contribution from your employer

With KiwiSaver, your employers have to match your contributions by at least 3%. An exception to this if you are on a “Complete Remuneration Package,” You can choose to contribute 3%, 4%, 6%, 8% or 10%, however, your employer is still only required to contribute 3%.

It’s convenient

With KiwiSaver, your contributions go straight from your pay into the scheme you have selected. You don’t get to miss out on the money because you didn’t get it in the first place!

Contribution from the government

The government also contributes to your savings – so long as you are eligible. The government will pay 50 cents for every dollar you contribute, up to a limit of $521.43 per annum. This donation from the Government is paid directly to your account, typically in the month of July.

Get your first home

You may use your KiwiSaver funds to help you purchase your first home (including employer contributions). If you have never owned a home and have been a member of KiwiSaver for at least three years, you can take out all the money you and your employer have put in, as well as all the returns on investment, to help you purchase your first house.

Due to income and house price limits, you may be eligible to receive up to $10,000 additional Government support to your first home after three years of membership.

You could set up KiwiSaver for your kids.

Give your kids a life-start. If you choose, you can set up KiwiSaver for them – and the sooner you start contributing to their KiwiSaver account, the sooner they can benefit from compounding returns. It would be easier for your kids to save enough for a first home or a comfortable retirement when the time comes. KiwiSaver offers a solid low-risk investment over other marketable investment options.

How do you join KiwiSaver

Interested in joining KiwiSaver? Where do you start? Well, you are in the right place.

Depending on your situation, there are several ways for you to join KiwiSaver.

Joining as an employee

As an employee, your employer will enrol you into KiwiSaver automatically if you are eligible. You must be between the ages of 18 and 65 and your job has to be a full time or permanent part-time job.

In some cases, if you have had a contract that spanned for at least 28 days then you can be enrolled. If you are not automatically enrolled, you can ask your employer or enrol directly with a KiwiSaver provider. You get to choose the rate for deductions from your salary.

If you fail to choose a rate, then your employer makes a compulsory 3% deduction from your first payment. You have a period of eight weeks to decide if you will want to continue with the KiwiSaver account or you will like to opt-out.

Joining as an already existing employee

As a new employee, all you need to do is to ask your employer for a KiwiSaver KS3 information kit and fill out the KiwiSaver KS2 deduction form. Give it to your employer and they’ll start your next payment with your KiwiSaver deductions.

You can join a provider directly, as well. However, If you join directly with a provider you do not get the opt-out option.

Multiple employers

If you have more than one employer, you can tell your provider which one to deduct contributions from. Or you can leave it to them to contact your main employer to start making contributions.

Self-employed

You can join the KiwiSaver scheme even if you are self-employed. In these situations, you’ll need to decide how much to contribute to your KiwiSaver scheme provider and make your payments directly to it.

Payments will be in a dollar amount and not the regular percentage. There’s currently no minimum annual contribution for self-employed KiwiSaver Scheme members. Remember, if you contribute at least $1,042.86 annually, you may get government contributions.

Choosing a KiwiSaver Provider

Once you have joined the KiwiSaver scheme, your main relationship will be with the scheme provider. When choosing a service provider bear in mind that the KiwiSaver scheme fees must be reasonable.

A KiwiSaver scheme provider is an organization that offers a KiwiSaver scheme and is responsible for managing your savings in the scheme.

It is your scheme provider you will have to contact if you have any questions about your KiwiSaver membership and account.

Default providers have a special arrangement with the Government to allow them to meet further reporting requirements The operations of default providers and their default investment funds are monitored closely. The Government does not, however, guarantee KiwiSaver investments. You make choices about your investment at your own risk.

How Do You Choose a KiwiSaver Provider?

Set Objectives

What would you like to accomplish with KiwiSaver? Would you like to generate investment funds for retirement or would you like to save towards a deposit for your first home? The truth is when it comes to life savings, everyone has different needs. Perhaps you need to simply make the base commitment and leave it. This is totally fine.

For whatever reasons or length of time you are saving for, it is necessary to set clear objectives about what you need to get out from KiwiSaver, this will make choosing a provider and scheme to go with a lot simpler.

Research for the right KiwiSaver Provider

Getting a suitable KiwiSaver provider is one thing that is often overlooked.

Ensure you view the Website of each KiwiSaver provider to see what sort of service they have for membership, which initial investment advice you get when you get it, and if they have continuing advice?

Things like face-to-face services are also helpful, particularly if you want someone to review your results and offer suggestions to improve the performance of your fund.

Compare funds!

At the end of the day, KiwiSaver is an investment, and like every investment, you need to weigh your options carefully and manage your funds so that you can optimize your future returns.

Doing a bit of research into the types of funds available is a crucial step to choosing a scheme provider.

Note that if you don’t choose a preferred scheme and there’s also no scheme selected by your employer, Inland Revenue will automatically assign you to one of the default providers by the government (below).

If you’re assigned to one of the government’ default providers for the scheme, your KiwiSaver administrator will help you invest your contributions in the scheme’s conservative investment fund option.

What makes up your KiwiSaver Contributions?

Setting up your KiwiSaver represents a major step towards a secure retirement. The next move is to ensure that you get the most out of KiwiSaver by placing yourself in regular amounts and optimizing other contributions that you might be entitled to – such as government contributions.

What makes up your balance with KiwiSaver?

Your contributions + Your employer’s contributions + Government contributions +/- Returns – Fees -/+ Taxes = your KiwiSaver account

The next big questions then are how much should you contribute? How much retirement savings should you make?

The faster you begin to save, the happier you will be. Time can affect your investment tremendously, and small extra investments will make a difference for your future. So it’s better to make larger donations.

A small change in contributions over time can make a major difference. You can also benefit from receiving returns on your investments by starting to save early.

Choosing the Fund

At the point when you’re approaching retirement, you might be thinking about your KiwiSaver choices. One key decision to make is to ensure you are invested in the right fund.

Commonly, five types of funds may be available, depending on the degree of risk that you are willing to consider. The problem with KiwiSaver funds is that various naming terms are used by all providers, which is where misunderstanding can arise. When we focus only on the uniform level of the risk profile, funds are often defined as the following:

Low Risk

Low-to-medium risk
Medium risk
Medium-to-high risk
High Risk

A higher-risk KiwiSaver fund helps you to potentially maximize your growth in the long term. Make sure that you evaluate the KiwiSaver funds and assess the amount of risk that you are able to take.

Regardless of whether you are retiring soon, the incentives of KiwiSaver can support your savings so you could have a sizable measure of cash when you retire. It’s all about picking the best fund.

Most KiwiSaver providers offer a variety of investment funds, so you can choose which one of the investment funds to go into.

There are two key interesting points you should consider when picking a fund. These are the related risk, and the fees charged.

In comparing KiwiSaver funds, what is important is the performance and the fees you’ll pay, and you have to adjust that against the risk you’re ready to take.

The following steps will help you choose the most appropriate fund for you.

Step 1: Understand the Investment options

The different types of KiwiSaver funds invest in different assets. For the more growth-focused investments, a higher proportion of your money goes into shares.

Some of the fund types are:

Growth funds (The riskiest, as they invest shares)

Balanced funds (Mixing share ventures with safer term deposits and money)
Conservative (This has an even lower risk, with around 80% of the cash put into bank deposits and fixed-interest bonds)
Cash (This has the most minimal risk, as cash is kept in bank accounts)
Ethical (These funds are special and for the most part are invested in specific niches, for example, water, economical vitality or socially responsible organizations)

Some KiwiSaverschemes let you blend KiwiSaver funds to suit your investment profile. This implies you are not put 100% into one fund, but you may have 25% in growth, some in balances and the rest in preservationist reserves.

Step 2: Understand the fees

Fees, usually in dollars, are charged for all KiwiSaver funds. These include administration and membership fees, calculated as a percentage of the value of your investment.

The lower the payments, the happier you will be in retirement anyway. Fees are calculated and deducted daily; a low-cost fund will charge about $50 a year on a KiwiSaver of $10,000, whereas a high-fee fund could charge as much as $150, or even more. You can view the fund’s fee on the KiwiSaver scheme’s website.

Step 3: Evaluate the Performance

You can only compare funds in the same categories; for example, comparing a growth fund’s performance to a conservative fund is meaningless as they invest in completely different stuff.

To get an idea of the best-performing funds, you can take the test to make sure you select the correct sort of fund. It is worth testing your responses three times to make sure you’re 100 per cent confident.

When to withdraw your KiwiSaver Funds

You can withdraw all of your KiwiSaver funds when you hit the New Zealand superannuation qualification age, which is currently 65.

With an early withdrawal, you might in some cases be able to make earlier savings to your KiwiSaver. Examples include whether you: are in severe financial difficulty, buying your first home or have a serious illness.

Other cases where the KiwiSaver money can be withdrawn early include: by court order in case of death or when moving qualifying savings from overseas schemes. Both of these cases are subject to conditions and not everyone will be qualified for early withdrawal.

However, you don’t have to withdraw any of your KiwiSaver savings simply because you become eligible to do so? Continuing to invest may have real advantages for you.

When you’re qualified to make a KiwiSaver retirement withdrawal, your employer no longer needs to make contribution commitments. Notwithstanding, it’s worth inquiring as to whether they’ll proceed because a number of businesses have decided to do so.

Saving for A First Home

You’ll be qualified for a KiwiSaver first home withdrawal if:

You’ve saved for three years.
You’re a first-time property or land proprietor.
The property or land is in New Zealand.
You will live in the house you’re purchasing or build a home to live in on the land you’re purchasing.
It’s the first time you’ve made a withdrawal from KiwiSaver to purchase a home.

If you meet the qualification standards, you’ll have the option to utilize your KiwiSaver funds to put towards the acquisition of your first home. You’ll have to leave a minimum of $1,000 in your KiwiSaver account and you can’t pull back any sum moved from an Australian superannuation fund.

You could be qualified for a KiwiSaver HomeStart award of up to $5,000 to purchase a home or up to $10,000 in the event that you are building or buying a recently built home. If you’re doing this with another person and they’re qualified, you could get up to $20,000 between you (for building or purchasing a recently built home).

What to know before you buy your first home

In the event that you are utilizing KiwiSaver to purchase your first home, you’ll have to send in your application as early as ten working days before the settlement date.

You will not be eligible for the KiwiSaver first-home withdrawal if you’re already a home or landowner – even if just newly purchased or acquired.

A bit of planning can go far towards a comfortable future. If you’re near 65, now is a decent and ideal opportunity to consider how your investment could function for you once you’re retired.

Saving for Retirement

Although they say that money can’t buy happiness, it can provide protection and freedom in retirement to do the things you’d like. It’s important to work out how much money you will need because NZ Superannuation (if you are eligible) is unlikely to be enough to maintain your current lifestyle.

Use our calculator to see how long your savings on KiwiSaver will last you in retirement.

Conclusion

When it comes to signing up for KiwiSaver, the question to ask is not why? but why not? This is because of the benefits KiwiSaver offers. With your contributions coming out of your pay before you get to see it makes saving easy. Don’t miss out on free money from the government. Effectively manage your KiwiSaver and enjoy retirement in bliss.

Frequently Asked Questions

Is a KiwiSaver Account better than a Savings Account?

Why should you rather go for KiwiSaver rather than the regular bank savings accounts? Certain conditions hold when it comes to operating a savings account. The two conditions for these savings accounts are that each month you make a small deposit and do no withdrawals. The downside is that savings accounts are heavily taxed.

In addition, the employer and government contributions make KiwiSaver a more attractive choice for those who are searching for long-term savings. KiwiSaver is among New Zealand’s most lucrative low-risk investment choices. KiwiSaver is a very lucrative investment option for Kiwis of all ages and demographics if you can afford the small deduction from your take-home salary.

Can I join KiwiSaver if I already have a retirement savings scheme?

Indeed you can. With both plans working together, you’ll work towards your optimal retirement a lot quicker.

When Can I not join KiwiSaver?

You can’t join KiwiSaver in the event that you:

Have an impermanent, guest, work or understudy visa;
Live abroad (except if you are an administration worker utilized on New Zealand terms and conditions); or
Are serving in a jurisdiction where offers of KiwiSaver enrollment are unlawful.