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KiwiSaver contributions explained

Find out more about choosing your contribution rate, employer and government contributions, and what happens when your circumstances change.

Joining the KiwiSaver scheme is a great step towards saving for your retirement, and the sooner you start, the more money you will be able to enjoy when you turn 65.

If you’re new to KiwiSaver, you might be confused about how much you need to contribute and how employer and government contributions work. In this guide we break everything down for you, so you can start saving with confidence.

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Choosing your contribution rate

Whether you have joined KiwiSaver through your employer or directly with a KiwiSaver provider, you’ll need to decide how much of your salary you want to contribute. You can choose between 3%, 4%, 6%, 8% or 10% of your before tax pay, but if you don’t decide, 3% is the automatic default rate.

Whatever percentage you choose, you don’t have to worry about calculating how much you need to set aside each pay cycle. Your employer will deduct the appropriate amount and then pass it on to the IRD, who will in turn pass to your KiwiSaver provider. However, the IRD does hold on to your contributions for the first 2 months if you are a new KiwiSaver member.

How much should I contribute?

The more you put into your KiwiSaver, the more you will have to enjoy later on in the future. However, it’s important to consider how much you can actually afford.

For those that start with KiwiSaver when they are 18, there are potentially 47 years to save for retirement. But those that start later on, could only have 10, 20, or 30 years to put money aside.

While 3% is a good number to start off with, if you’ve entered KiwiSaver late and are worried that you are not going to be able to save enough, it’s worth considering if you are able to contribute another 1-2% more out of your pay, as this could reward you with tens of thousands more by the time you reach 65.

If you’re on a gross salary of $50,000 a year, 3% of your salary is $29 a week. 4% is $38 and 6% is $58. On a gross salary of $100,000, weekly contributions at 3% are $58, $77 at 4%, and $115 at 6%.

For the cost of a couple of coffees a week from your favourite cafe, you could make the increase from 3% to 4% contributions and make a difference to your future. Even if you start off at 3%, you could move up to a higher percentage when you get a pay rise or find that you have more disposable income than you did before.

Bear in mind
One thing to remember about KiwiSaver is that once you join there are only certain circumstances where it’s possible to make a withdrawal such as reaching retirement age, buying your first home, serious illness and financial hardship.If you are concerned about over committing yourself, you may want to consider only contributing the minimum amount of 3% to begin with, especially if you have just started out in your working life.If you want to save more, you can put aside an additional percentage of your income into a savings account or investment accounts so that you have funds available to dip in to for emergencies.

How does it work for self-employed or unemployed people?

If you’re self-employed or unemployed, you are obviously not getting paid through an employer, so you will need to manage your KiwiSaver contributions yourself.

You can confirm your contribution rate directly with your KiwiSaver provider, and make regular payments or lump-sum payments throughout the year. You can also pay your contributions through the IRD.

If your situation changes, for example, if you move from being unemployed to employed, your self-employed income goes up or down, or you move to be an employee rather than self-employed, you can discuss your contribution rate with your provider. When you move to earning salary or wages, your new employer can start making deductions from your pay.

Employer contributions to your KiwiSaver

It is compulsory for employers to make contributions towards their employee’s KiwiSaver funds, unless another superannuation fund is in place or the employee has chosen to opt-out of the scheme. The minimum that they must contribute is 3% of your salary or wages, but some employers may pay more.

Contributions continue for as long as the employee stays with the company, unless they have a savings suspension, go on unpaid leave, or are receiving paid parental leave payments.

Employer contributions are paid directly to the IRD, and the IRD passes the money on to the appropriate KiwiSaver providers.

Government contributions to your KiwiSaver

It’s not only your employer that contributes to your KiwiSaver. The government helps out too – well that is, if you contribute enough yourself and are at least 18 years of age.

For every $1 that you put into your KiwiSaver account, the government will contribute 50c up to a maximum of $521.43. To get this full amount, you’ll need to have paid at least $1,042.86 into your KiwiSaver through salary and wage deductions, IRD payments or scheme provider payments. You’ll need to make sure that the $1,042.86 has been paid to your KiwiSaver before 30 June each year.

If you’ve moved money over from an Australian retirement scheme, or are banking on your employer contributions making up this sum, unfortunately, these are not included.

Also, if you are on a lower income and only choose to contribute 3% of your salary or wages, you may not meet the required figure to receive the full government amount. If you’ve only managed to put away $900 because you have chosen 3% of a $30,000 salary, you will still get $450 in government contributions. Plus, you can top up the remaining $142.86 with a lump sum payment to get the full $521.43.

If you’re self-employed, unemployed or on a savings suspension, you will also need to make a lump-sum payment.

You don’t need to do anything to actually get the government contribution into your KiwiSaver as long as you meet the eligibility requirements. Your provider will apply for it after 30 June each year, then it could take up to two months to appear in your KiwiSaver. In most cases, you’ll see the funds by the end of July.

What happens to my contributions if my circumstances change?

During your working life, there may be times that your circumstances change and you are no longer receiving your usual salary. For instance, you could be on parental leave, be recovering from an injury and receiving ACC payments, or you may have been made redundant or had your hours cut so you are receiving an income-tested benefit from Work and Income.

Depending on the situation, your KiwiSaver contributions may stop automatically, but there are ways to make sure that your contributions continue when you are not receiving your regular income from your employer.

For example, if you are receiving government paid parental leave or weekly ACC payments, your income is not coming from your employer and your contributions will stop automatically. You can complete a KS2 form to keep your contributions going from your parental leave or ACC.

If you go on unpaid leave, your contributions will also stop since your employer is not paying you. As you are not receiving any income at all, you will need to contact your provider to arrange contributions. If you’re on a benefit, you can make contributions directly to your provider or through Work and Income.

Can I take a break from making KiwiSaver contributions?

You can’t just stop making contributions when you feel like it, but it may be possible to take a break if you meet the criteria to do so.

In the past, it was possible to stop paying contributions for a period of between three months and five years, effectively known as a holiday period. This worked well for Kiwis that wanted to spend some time living overseas, or for those starting out in self-employment and wanted that bit of extra cash to get the business going.

This all changed in 2019 though, with the holiday period renamed as a savings suspension, and the maximum time frame shortened from five years to 12 months.

Whether you are going on an extended holiday, have medical bills to pay or want to clear some debt, there are many reasons to apply for a savings suspension, but you need to have been contributing for at least 12 months. It is possible to renew the savings suspension after 12 months, but you should consider the amount of money from employer and government contributions that you are missing out on, as these can add up over one year.

If you haven’t been in KiwiSaver for 12 months, you may be able to apply for an early savings suspension if you are experiencing financial hardship.

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