KiwiSaver is a national and voluntary retirement investment scheme for New Zealanders
KiwiSaver is a voluntary savings initiative to help you with your long-term saving for retirement or to assist you purchasing a first home. KiwiSaver Schemes are managed by private sector companies called KiwiSaver providers. You can choose which KiwiSaver provider you invest your money with, and while you can switch between providers you can only be a member of one scheme at a time.
You don't have to be employed to join KiwiSaver, but you do have to be:
Find out more about who can and can’t join KiwiSaver on the Inland Revenue KiwiSaver website.
While KiwiSaver is voluntary, if you’re 18 or over and start a new job you’ll be automatically enrolled in KiwiSaver (with some exceptions).
For most people, KiwiSaver is work-based. This means you'll receive information about KiwiSaver from your employer, and KiwiSaver contributions will come straight out of your pay.
If you're self-employed or not working, you can contribute directly to your particular KiwiSaver Scheme investment provider. These are called voluntary contributions, and anyone who is self-employed or not working is usually well-served by contributing at least $1,043 each year to obtain the annual government contribution, described below.
KiwiSaver is a hassle-free way to regularly invest, and several great benefits make KiwiSaver a ‘must-have’ component of any wealth creation plan. The key benefits are:
How well an investment in KiwiSaver performs will depend on the skill of the manager running your fund (including how the fund is structured if the fund is one of the few passively invested KiwiSaver Schemes), the performance of the underlying investments held by your fund, and the fees charged on your fund. Most New Zealanders give little thought to which KiwiSaver Scheme they’re in, often staying in a default scheme or simply sticking with their bank scheme so they can see their scheme when they log in to online banking. Most often, we advise people to not check KiwiSaver balances regularly, such as when they log in to online banking, and instead keep in mind that KiwiSaver is a long-term investment which will occasionally go down in value - unlike a bank savings account it may be displayed next to.
Crucially, not making an active choice about which KiwiSaver Scheme you use could cost you hundreds of thousands of dollars before you reach retirement in higher fees, underperformance, or both. While there are no guarantees about future performance, choosing your own provider ensures you can make the most of KiwiSaver by investing in a scheme which:
As we’re not a fund manager and aren’t owned by a KiwiSaver provider (unlike some financial advice firms!) we work with a variety of KiwiSaver providers and can compare the performance of nearly all of them. This means that we can check your existing investment without bias and, depending on your personal circumstances, can find an alternative that suits you.
While KiwiSaver has some great benefits, making a minimum contribution a 'no brainer', the disadvantages below mean that most people shouldn’t invest more than the minimum into KiwiSaver. Instead, as a complement to KiwiSaver, it’s nearly always a great idea to have other investments which can be more easily accessed. This is where a trained professional can advise you on the best investment options for your situation, so you can achieve your financial goals while staying flexible.
Strict withdrawal criteria mean that KiwiSaver Scheme investments will generally be inaccessible until:
This means KiwiSaver doesn’t consider varying situations you may be in, and whether this is the best form of investing for your individual needs. For example, if your focus is to save for your children’s education, then KiwiSaver is clearly the wrong model. There are plenty of other investment funds to choose from that achieve the same compounding investment return without being locked away.
When an investment passes a certain threshold of value, we typically recommend investing with a range of different investment managers. This is to avoid ‘concentration risk’, or the risk of one investment manager underperforming over a period of time. While concentration risk isn’t a problem for most KiwiSaver members yet, as most balances are reasonably modest, an investment approach which spreads risk between different investment managers is currently only possible with select KiwiSaver Schemes.
There are still many misconceptions about KiwiSaver. One of these is that any investment made into KiwiSaver is guaranteed by the government. While the government regulates KiwiSaver providers and helps administer KiwiSaver, the government does not guarantee returns for KiwiSaver investments. This means any investment you make in KiwiSaver is made at your own risk. Arguably, this is actually a significant advantage, as it means that not only should you take an interest in a KiwiSaver Scheme investment (as you should with all investments), but it also stops KiwiSaver providers from taking undue risks - which many surely would if the government was there to reimburse any losses when they made a mistake!
Investments in KiwiSaver are subject to the KiwiSaver Act of 2006. As is the case with most pieces of legislation, this act has been changed with successive governments. In general terms, the more years there are to pass before you retire, the higher the likelihood that there will be more changes to KiwiSaver by different governments.
Specifically, to date, a number of the financial incentives originally designed to encourage people to use KiwiSaver have since been modified or removed. The eligibility age for New Zealand Superannuation has also been increased, which increases the age people must reach to access a KiwiSaver investment.
Your entry age, who you choose to place a KiwiSaver Scheme investment with, your contribution rate, and the type of fund you choose can all have massive effects over the long-term. Many New Zealanders are simply sleep-walking towards retirement, and have not idea how much they might need for their retirement nest egg.
While KiwiSaver undoubtedly offers you an effective method of investing for the long-term, perhaps the biggest issue with KiwiSaver is that many New Zealanders think that because they’re a KiwiSaver member they’ll have a sufficient nest egg for retirement. For most people, this couldn’t be further from the truth, as KiwiSaver is just one part of an overall wealth creation strategy.
If you’ve been a member of KiwiSaver for three years, you may be eligible to withdraw most of your investment to put toward purchasing your first home. Learn more about buying your first home, including what may be available to you through KiwiSaver and the KiwiSaver First Home Grant.
For a complimentary and no obligation consultation with a financial adviser about topics such as how your current KiwiSaver Scheme investment compares, buying your first home, investing in more flexible investments than KiwiSaver, and/or how you can best prepare for retirement, call 0508 232 663 or leave your details and enquiry below.
If you’re ready to get on the road to wherever you want to go or a Financial Health Check, now’s good. Tell us how we can help and we’ll be in touch.