Most people look forward to their retirement years, with plans of spending time with friends and loved ones, daily rounds of golf or even holidays around the world. But without any savings, these dreams are just simply not going to happen and you’ll be left living week to week on a small budget.
Saving from an early age means that you’ll have less financial stress when it comes to thinking about retiring, and you’ll be able to enjoy all those things you didn’t have time for in your working years. Thanks to KiwiSaver, Kiwis are able to save $600 a month on average through regular contributions and the return on their investment with various providers and schemes.
KiwiSaver is a work-based savings initiative that takes contributions from your own pay cheque, as well as from your employer and the government, and invests them in conservative to high-risk growth funds. It’s a voluntary scheme that you can start at any time to save for your retirement, and you can decide the contribution percentage you’d like to make. You can choose the KiwiSaver provider you want to invest your savings with, or the Inland Revenue Department (IRD) can assign you to one of the default schemes. You will be able to access your savings when you reach the NZ Super age, which currently sits at 65.
As well as saving for your retirement, you can put most of your KiwiSaver savings toward purchasing your first home as long as you have been making contributions to your account for at least three years. You can also take advantage of the KiwiSaver HomeStart Grant, where the government gives eligible New Zealanders up to $10,000 for buying a new home or land.
Even though the government contributes to your KiwiSaver account, it does not guarantee KiwiSaver and its returns, so your investment is at your own risk.
How do I join KiwiSaver?
There are three pathways to join KiwiSaver as a regular employee as well as special rules for trusts and partnerships.
Automatic enrolment. You will be automatically enrolled in KiwiSaver when you start a new job if you are not already a member and are aged between 18 and 64. This applies to full-time and permanent part-time positions as well as to temporary contracts for more than 28 days and to casual agriculture contracts for longer than three months.
Join through an employer. You can ask your employer for an employee information pack and then complete a KiwiSaver deduction form. Your employer will notify IRD that you have opted in.
Join through a KiwiSaver provider. You can contact the provider you would like to join, who will send you an application form. You will need to inform them of your contribution amount and the employer(s) that the deductions will come from.
Special rules apply if you are a working partner of a partnership or if you have a trust-run business. You can join KiwiSaver by giving your payroll a KiwiSaver deduction form or contacting a KiwiSaver provider directly.
Things to keep in mind
While you don’t have to be employed to join KiwiSaver, you do need to be a New Zealand citizen or have the right to live in New Zealand indefinitely. You’ll also need to be living or normally living in the country.
Do note that once you join KiwiSaver, you can’t opt out, so make sure that you are completely comfortable with the commitment before submitting the paperwork.
Who provides KiwiSaver accounts?
There are a number of KiwiSaver providers that can manage your savings in a scheme. You can choose your own provider after conducting your own research or getting financial advice, or the IRD can allocate you to one of the nine government-appointment providers. Your employer may have their own preferred KiwiSaver scheme that you will be allocated to, but it’s possible to switch to one that you would like at any time. If you would like to do your own research as to what the schemes offer, you can go to the Disclose Register for more information.
How does KiwiSaver work?
Once you have enrolled in KiwiSaver, you will need to contribute for at least 12 months before you can take a break. If your employer has automatically enrolled you in the initiative, you can opt out at any time between two and eight weeks of starting your new job.
You can choose to contribute 3%, 4%, 6%, 8% or 10% of your gross salary or wage. Your employer needs to contribute at least 3%, and the government puts in its own contribution of up to $521 a year as well. Self-employed and unemployed people do not need to contribute a set amount and can set up a direct debit or make lump-sum payments.
Funds are invested into a scheme of your choice, where investment returns can go up or down over time depending on how that fund is performing.
Your savings total will include contributions made by yourself, your employer and the government, minus any taxes or fees balanced with investment returns.
You have the option to change your provider whenever you want to, but you are only able to have one scheme at any time.
What are the benefits of KiwiSaver?
Before committing to KiwiSaver, it’s important to understand the benefits that this savings scheme has to offer so you can ensure that it’s the right choice for you.
Hassle-free saving. Your KiwiSaver contributions come out of your pay cheque before it hits your bank account. You don’t need to worry about transferring funds yourself, and you can adjust your budget according to the salary or wages you receive.
Employer contributions. As well as the contributions you make to your KiwiSaver, your employer is required to contribute at least 3% of your gross income.
Government contributions. Up to $521 is contributed to your account by the government every year.
Not only for retirement. Most people use their KiwiSaver account as a way to save for retirement, but you can also use your savings to buy your first home.
KiwiSaver HomeStart Grant. Get up to $10,000 from the government toward your first home if you are eligible.
Access to funds. In times of significant financial hardship, you are able to access some of your savings if you meet certain criteria. You can also access funds if you move overseas permanently or have a serious illness.
Withdrawal at age 65. Once you turn 65, you can apply to withdraw your savings either in small sums, regular withdrawals or one lump sum.
The account moves with you. Your KiwiSaver account moves with you no matter how many times you change jobs.
How do I manage my KiwiSaver?
Once you have opted in to KiwiSaver, whether that’s through your employer or directly with a provider, there is not a lot that you need to do to manage your account, but here are some things you need to know.
Your provider will keep you updated with regular statements showing the number of contributions paid into the account and any return on investment. You can also check this information on the Inland Revenue KiwiSaver website.
If you need to change your contact details or the contribution percentage that you currently have, you will need to contact your employer or provider to action these requests.
It is possible to change your KiwiSaver fund, but it’s best to get advice from an authorised financial advisor before doing so.
If you are having difficulty keeping up with your contributions, you can take a “contributions holiday” lasting between three months and five years. This is for members who have been contributing to their account for at least 12 months, but you can apply for an earlier break in contributions if you are suffering from financial hardship.
You are able to make voluntary lump-sum payments at any time, either to Inland Revenue or to the provider.
Ways to use your KiwiSaver ethically
With many different investment funds available, there is a chance that your money could be invested in something you deem unethical, such as nuclear power, weapons, gambling or alcohol. Thankfully, there are a number of providers that have processes in place to ensure these kinds of investments are filtered out, so they only offer ethical opportunities.
If you are looking for an ethical provider for your KiwiSaver scheme, there are a number of options to choose from. These include AMP, ANZ, ASB, BNZ, Booster, Fisher Funds, Fisher Funds TWO, Generate, Kiwi Wealth, Lifestages, Mercer, Milford, Nikko AM, NZ Funds, QuayStreet, Simplicity, Summer and Westpac.
Monique Law is a writer for Finder. Since 2016 she has written across numerous topics including consumer goods, personal finance, travel, personal development, lifestyle and health. After many years of living abroad and travelling on a budget, she's become an expert on researching and finding the best deals. Monique is studying a BA in Political Science and Communications and has a passion for travel, political/spy dramas and watching world events unfold live on CNN.
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