How does KiwiSaver work?

05 April 2023

How does KiwiSaver work? 

We’re glad you asked. Maybe you’re thinking of joining the voluntary savings scheme for the first time – or you’d just like to make the most of your KiwiSaver account from here on out. Either way, this quick guide will show you that KiwiSaver can be straightforward once you know the basics. Ready, set, go.  


The key benefits of KiwiSaver 

Calling it a ‘voluntary savings scheme’ can be a tad misleading. For all intents and purposes, KiwiSaver is a long-term investment tool – and one with some pretty unique features, at that. Here are three key benefits: 
  • Employed? Your employer contributes too. With KiwiSaver, you’re not alone in adding to your retirement nest egg. If you’re employed and aged 18-65, your employer must also contribute to your KiwiSaver account, paying at least 3% of your gross earnings on top of your regular pay. Some even choose to contribute more.
  • The Government also chips in. Employer contributions are not the only ‘extra help’ that KiwiSaver receive along their retirement savings journey. Each year, for every dollar you contribute, the Government adds 50 cents to your KiwiSaver account, up to a maximum of $521.43 per year. That’s the annual government contribution, and all KiwiSaver members aged 18-64 get it. What other investment options offer you a guaranteed 50% return on investment on your first $1,042, every single year? Learn more here.
  • A helping hand for first-home buyers. Lastly, if you’re looking at buying your first home, KiwiSaver can help with that too. Once you’ve been a member for three years, not only you can use your KiwiSaver money to help with the deposit on your first home, but you may also be eligible for a KiwiSaver HomeStart grant. Provided you meet the criteria, you might receive up to $5,000 for an existing home, or up to $10,000 for a new build. And if you buy with another eligible KiwiSaver member, you can join forces and double your grant money.  

How to join (if you haven’t already) 

If you haven’t joined yet and would like to, check if you’re eligible. The answer is a resounding yes for New Zealand citizens and permanent residents who normally live in New Zealand – no matter if employed, unemployed or self-employed.   

If you’re an employee you can enrol through your employer, otherwise you can contact a scheme provider directly. The key thing, as we’ll see shortly, is to be proactive. 


Choosing your contribution rate 

Once you’ve decided to join, it’s time to ponder the ‘contribution question’ - aka how much do you need to contribute to your KiwiSaver to achieve the retirement lifestyle you’re envisioning. Here are a couple of things to know:  

  • If you’re employed, you can choose to contribute 3%, 4%, 6%, 8% or 10% of your gross (before tax) wage or salary to your KiwiSaver balance. If you don’t choose a higher rate, the default rate is 3% - but as we pointed out here, it’s unlikely to be enough for a comfortable retirement. The good news is that, unless your employer agrees to a shorter timeframe, you can change your contribution rate once every three months.   

  • If you’re self-employed or unemployed, you can choose how much you’d like to contribute directly with your KiwiSaver provider. Of course, you won’t receive employer contributions, but as long as you contribute, you’ll get the annual ‘bonus’ from the Government of up to $521.43. That’s why it makes sense to put in at least $1,042.86, to maximise the Government contribution.   

Like to know how you’re tracking? You can use our KiwiSaver check-up tool to calculate what difference changing your contribution rate could make down the line.  


When can you withdraw your money? 

Generally speaking, apart from a few exceptions, you can only access your KiwiSaver savings after you reach retirement age - currently set at 65 years old. This is because KiwiSaver is intended to be a long-term investment tool, and restricting access to your funds is a way to ‘protect’ your money and allow it to grow undisturbed.  

However, there are exceptions to this rule. You can withdraw from KiwiSaver early if you:  

  • are buying your first home  

  • are in significant financial hardship (learn more here) or have a serious illness 

  • emigrate for good.  


Keep in mind that early withdrawals come with strict eligibility requirements. For example, to get your funds for significant financial hardship, you need to provide extensive evidence.   


The importance of choosing your own fund 

Contrary to what many people think, KiwiSaver is not just one fund type. The beauty of the scheme is that there are different options for any needs and goals, namely around 30 scheme providers, all offering a different range of funds.   

The first step is to understand what fund type is right for you. KiwiSaver funds range from defensive (the lowest-risk option) to conservative, balanced, growth, and aggressive (the highest-risk option). How much risk you can afford to take depends on your own risk profile, which is made up of your investment horizon (the time you have set to meet your objectives) and your emotional response to volatility. Too much risk, and you’ll be in for an uncomfortable ride. Too little, and you may miss out on crucial growth opportunities.  

And here’s the thing: if you don’t choose your own KiwiSaver provider when you enrol, you will be automatically enrolled with a ‘default’ provider and your money will be invested in a ‘default’ balanced fund, which may or may not be aligned with your risk profile. The good news, however, is that you can change your KiwiSaver fund at any time.  

Once you’ve identified your fund type, all you need to do is compare scheme providers and find one that suits you, looks after you, and matches your values. From investment managers and banks through to specialist managers, like us at kōura, different KiwiSaver providers offer different features, fees and of course, funds – click here to learn more about how we do things and why.  


Review your KiwiSaver regularly

In life and in finances, things change. Share markets go up and down. Your risk profile evolves as you move closer to your investment goals. And in the meantime, your priorities may also shift. So, you want to make sure that your KiwiSaver plan remains aligned with all of this, and the best way to do so is through annual reviews. 
Many people believe that KiwiSaver is a case of set-and-forget, where you simply join, keep contributing the minimum, and wait 30 or 40 years until it’s time for your retirement nest egg to hatch. But in fact, like any long-haul journey, with KiwiSaver it’s important to check in regularly to ensure you’re on track – and if needed, make adjustments along the way.  
Like to review how far your current KiwiSaver plan set-up will get you? Try our handy portfolio generator: in a few minutes, it can help tell you what your KiwiSaver plan could give you based on different contribution rates and asset allocation. 


Are you with the right KiwiSaver provider for you? 

Is your KiwiSaver provider aligned with your investment needs and values? It’s likely that you haven’t thought much about this, but there can be many good reasons for contemplating a switch.   

For example, you may be looking for a better service, more timely communication, and lower fees. Your ideal KiwiSaver provider might also offer online tools to help you understand your investment better, and regularly keep you in the loop with the latest insights and tips. Plus, if ESG values (Environmental, Social, and Governance) are important to you, you may want to find a provider that invests ethically.   

Switching to a different provider, without changing fund types, can help you save money on fees, improve your experience overall, and hopefully enjoy better returns.   

Are you wondering if kōura might be a good fit for you? Once again, our online portfolio generator can help you make an informed decision.  

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance. 

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