KiwiSaver 101: put your money to work

By MAS Team | 31 March 2021

When you're still at uni – or if you've just landed your first job – retirement can seem a long way off. And if you've got books to buy or a student loan to pay off, do you really need to think about what you're going to live off in forty or fifty years? There's plenty of time to worry about that later, right?

You might not have a lot of spare cash at the moment but the sooner you start saving for your retirement, the better off you'll be in the long-term. Luckily, things are a little easier in New Zealand thanks to KiwiSaver. 

KiwiSaver is a voluntary government scheme to help Kiwis save for their retirement. You make regular contributions; your employer contributes; and if you meet certain criteria each year, the government chips in as well. 

Even better – you can use almost all the money in your account to help buy your first home (subject to some requirements).

Here are a few tips to help you navigate the different KiwiSaver options. 

Hand putting a coin in a glass jar half filled with coins and the label 'future' on it

1. If you chip in, your employer and the government will chip in too. 

Number one on the list of reasons to join KiwiSaver – you're not alone in saving for your retirement. You may be eligible for help from your employer and the government too. 

If you're contributing to your KiwiSaver account (there are options ranging from 3% up to 10% of your salary), your employer typically has to contribute 3% of your salary as well. Some employers may even contribute more. 

So, if you decide to contribute 3% of your salary to KiwiSaver, your employer will typically match that with another 3%. That means you'll be saving the equivalent of 6% of your pay every payday (less tax on the employer payments).

On top of that, the government will chip in up to $521.43 each year, as long as you have saved at least $1042.86 in the previous 12 months ($20 a week).

Even if you haven't been contributing regularly from your pay, you can make a voluntary contribution into your KiwiSaver account by 30 June each year to bring you up to the threshold for getting the full amount from the government. You can do this even if you don't have a job – if you're between 18 and 65, any contribution you make up to the maximum qualifies. 

2. Ditch the default 

When you start your first job (and you're over 18), you can choose which provider and fund your money goes into. But if you don't make a choice yourself, you'll be placed in a default fund. 

This fund will be run by one of the KiwiSaver providers and, at the moment, it must have a conservative risk profile. This means that there will be a lower risk of losing money but you'll get potentially lower returns on your investment than if it was invested in a more aggressive fund. 

It's easy to just leave your money in these default funds but it's important to spend some time thinking about whether there's a provider or a fund that might be better for your needs.

Particularly if you're younger, and you're not likely to need the money for a while (either for retirement or for buying a first home), you may decide to put your money into a growth fund (more about this below). If you just forget about your KiwiSaver and stick with the default fund you started with, you might find yourself missing out on money at retirement you would otherwise have earned if you were in a more aggressive fund. 

The government is changing the rules for default fund providers, and from November 2021 new KiwiSaver members will be placed in a balanced fund rather than a conservative one. But even then, remember to do some research to find out if that's the best option for you. 

3. Understand your risk profile

KiwiSaver funds vary in terms of the risk they take on and the returns they might be able to provide. More aggressive funds tend to take on more risk through investing in shares and property with the expectation of higher returns, while more conservative funds will prefer cash and fixed interest investments, which is lower risk but also leads to likely lower returns over the long-term.

It's up to you as to which KiwiSaver fund you want your money invested in, and you need to weigh up a few different factors, including what stage of life you're at and what sort of risk you're comfortable taking on

For example, if you're in your early 20's and you're not planning on buying a house for quite a while, an aggressive fund might be best – as long as you're prepared to see your savings fall as well as rise, depending on what's happening in the financial markets. 

But if you're planning on buying your first home in the next two to three years (or you're nearing retirement) – and you're likely to need to withdraw your money – you should consider going into a more conservative fund so you don't risk having to withdraw your savings when their value has fallen in a market slump. 

A piggy bank at the start of stacked gold coins that increase in height leading to a house

4. Active or passive management?

Depending on your KiwiSaver provider, you funds can be actively or passively managed

Actively managed funds are looked after by investment managers who analyse markets and companies to inform decisions on what investments to buy or sell. Passively managed investments usually follow market indices (basically, the decisions are made by a computer rather than a real person).

The opportunity of actively managed funds is that you have a manager making choices for you, and they might be more alert to market and individual company risks and opportunities that the indices don't pick up on. On the downside, managers charge for their expertise so you might end up paying more in management fees than you would compared to a passive fund. 

5. Review your investment approach regularly

So you've chosen your provider, decided on what type of fund you want to be in, and locked in how much of your earnings are going into your KiwiSaver account each payday. Now you can sit back and watch your money grow, right?

Well, sort of. Because your needs will change over time, it's a good idea to set up a reminder every year or two to review your strategy

Is it time to get serious about buying a house? Then you might want to boost your contribution rate and change your risk by going into a more conservative fund. 

Have you bought a place and now want to reduce your contributions while you knock the mortgage on the head? You might want to change to a more aggressive fund while you're at it. 

There's a lot to think about, so it's important to get advice to figure out what's best for you. 

To organise an appointment with a MAS adviser at a time and place that suits you, just call the MAS team on 0800 800 627.

These appointments are completely free and MAS advisers don't get paid any commissions.

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