What is KiwiSaver? How does it work? With our KiwiSaver guide you can answer these questions and find the right options to help with your financial security in retirement.
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KiwiSaver is a voluntary, work-based savings scheme aimed at helping New Zealanders save for retirement.
You don't have to join. If you do, you'll have to put either 3%, 4% or 8% of your before-tax pay into a KiwiSaver savings scheme and leave it there until you turn 65. There are a few exceptions (see "Withdrawing your savings").
To help you save, the government will give you a tax credit of up to $521.43 a year as long as you are aged 18 or over. The exact amount of the tax credit will depend on how much you're paying into your KiwiSaver scheme - the government will match your contributions at 50 cents for every dollar contributed up to the $521.43 a year limit. It’s worth considering contributing at least $1042.86 per year to your KiwiSaver scheme in order to claim the maximum tax credit.
With some exceptions, your employer also has to contribute to your savings. Currently, your employer has to contribute 3% of your before tax pay. Some employers are choosing to contribute more than they have to.
You may be able to use some of your KiwiSaver contributions to purchase your first home, you may also be eligible for a $5000 or $10,000 deposit on your first home (see "KiwiSaver and home buying" to find out more).
If you join KiwiSaver, you can choose which KiwiSaver provider to save with and what type of scheme to invest in.
Some KiwiSaver schemes will play it safe to protect your capital. They'll keep most of your funds in bank deposits or other cash assets that are relatively secure but won't grow very quickly. Other schemes will take a few more risks with the aim of increasing long-term growth.
There are 5 types of funds Kiwisaver schemes may invest in:
The decision on whether to join KiwiSaver is up to you. (If you start a new job, you'll probably be automatically enrolled in KiwiSaver, but you can opt out. Otherwise, you'll have to join the scheme yourself). You might prefer to pay off your mortgage or credit card debt before saving for retirement, or to save in other ways such as buying property or investing in shares.
When you're making your decision, consider:
You're eligible to join KiwiSaver if you're aged under 65, normally present in New Zealand, and you're a New Zealand citizen or entitled to live here indefinitely (this means you can't join if you're only here temporarily - for example, if you're on a visitor or student visa).
If you're currently employed you can join KiwiSaver at any time. Just ask your employer. Note, though, that once you've opted in you can't opt out again (this means any contributions you make have to stay in your KiwiSaver account until you turn 65 or purchase a first home. There are a few exceptions, such as if you're experiencing hardship. You can, however, change funds or take a contributions holiday). You can either choose your own scheme or join the scheme your employer has nominated.
When you start a new job, you'll probably be automatically enrolled in KiwiSaver. There are exceptions: Your employer can decide not to enrol you automatically (in which case you can still ask to opt in). You won't be enrolled automatically if you're under 18, on a short term contract, on paid parental leave, or receiving schedular payments. And some types of casual workers aren't enrolled automatically.
If you're automatically enrolled but don't want to be in KiwiSaver, you can opt out unless you have opted in at a previous job. However, you can only do this during the period from two to eight weeks after you start the job.
When you go from one employer to another, you can take your KiwiSaver scheme with you.
Self-employed people, beneficiaries and children can join KiwiSaver. They'll have to choose a KiwiSaver scheme and make payments directly to Inland Revenue or the provider they've chosen.
You can choose from a wide range of KiwiSaver providers and schemes. If you join KiwiSaver but don't choose a scheme, you'll either be enrolled in the scheme your employer has chosen or in a default KiwiSaver scheme.
The default KiwiSaver providers are AMP, ANZ Investments, ASB Group Investments Ltd, BNZ, Fisher Funds Management Limited, Booster Financial Services, Kiwi Wealth Ltd, Mercer (NZ) Ltd and Westpac.
You can apply to change schemes at any time, but you can't belong to more than one scheme at once.
Before you choose, you'll need to consider:
You may also want to check with the provider which of the disputes resolution schemes they belong to.
Your KiwiSaver fund can be selected to avoid replicating other investments. You might have a share-heavy personal portfolio, so a KiwiSaver fund with a focus on cash and bonds could spread your risk. That’s where the new disclosure statements will help – investors can see where their funds are invested and whether they duplicate other investments they have.
The further you are from retirement, the longer you have to ride out any ups and downs in your KiwiSaver scheme. That’s why many financial advisers suggest you invest initially in a growth fund or an aggressive fund … provided you’re comfortable with the extra risk.
If you’re close to retirement you probably don’t want to put up with the fluctuations that can occur in those funds – you won’t want to risk your hard-earned savings. A quiet ride to the finish line in a conservative fund or a defensive fund may be more suitable.
Some providers offer “lifestage schemes” where you automatically move through the various types of funds according to age “milestones”. But these don’t suit everyone – young kiwisavers wanting to use their contributions for a first home might be better off in a conservative or defensive fund so the money is there when they need it.
Some providers offer extra services such as first-home buyer assistance and free “death by accident” top-up cover. Others let you invest lump sums or split your investment between different types of funds (for example, between a balanced fund and a growth fund). Free financial advice is also offered in some cases.
If you're an employee and you join KiwiSaver, you'll have to pay either 3%, 4% or 8% of your before tax pay into a KiwiSaver scheme. Your employer will take your contributions out of your pay (your employer forwards the contributions to Inland Revenue, which forwards them to your KiwiSaver account). Register on 'My KiwiSaver' through kiwisaver.govt.nz to keep track of contributions paid to the IRD.
If you want to switch from 3% to 4% or 8% or back again you can - but no more than once every 3 months.
After you've been in KiwiSaver for 12 months, you can also take a contributions holiday, meaning you don't have to pay into the scheme. This can be for any length from three months to five years. You can only take a contributions holiday once you've been in KiwiSaver for 12 months - or less if you're experiencing financial hardship.
You can make lump-sum contributions directly to your KiwiSaver scheme at any time, on top of your regular contributions.
To help you save, the government will give you a tax credit of up to $521.43 a year as long as you are aged 18 or over. The exact amount of the tax credit will depend on how much you're paying into your KiwiSaver scheme - the government will match your contributions at 50 cents per dollar contributed up to $521.43 a year limit.
With some exceptions, your employer has to contribute 3% of your before tax pay. Employer contributions are liable for tax. Some employers are choosing to contribute more than they're required to.
If you're self-employed, you'll have to agree with your provider how much you'll pay into the scheme and how often, and you'll need to make the contributions yourself. You can find out more about how KiwiSaver works for the self-employed from kiwisaver.govt.nz. Make sure you understand the rules before you join a KiwiSaver scheme.
If you have more than one job when you join KiwiSaver, you can choose which job or jobs you contribute from. If you take on an additional job after joining KiwiSaver, you'll have to contribute from that job for at least 12 months; after that you can take a contributions holiday. It is recommended you pay the minimum contribution from all income sources if you intend to apply for the first home deposit subsidy (see "KiwiSaver and home buying").
KiwiSaver can be used to help you buy a home. Once you've been a KiwiSaver for 3 years, you may be able to withdraw your savings including the tax credits of up to $521 a year (but you’ll have to leave $1000 in to keep your account open) to put towards buying your first home.
Once you've been contributing to KiwiSaver (or another approved savings scheme) for at least 3 years, you may be entitled to the first home deposit subsidy of up to $5000, or $10,000 if you’re buying a new home. You must have been contributing at least 3% (2% before April 2013) of total income towards your KiwiSaver Account. Total income includes wages and salary, student allowances, benefits and any other taxable income. You may be able to top up your contributions in order to qualify. See www.hnzc.co.nz for more.
To get the subsidy, you'll have to meet a household income test, buy a house that's under a certain value , and intend to live in the house for 6 months or more. You will also need to have a deposit that is 10 percent or more of the purchase price (including Kiwisaver withdrawals and the deposit subsidy). The deposit subsidy will not have to be paid back unless you do not live in the house for at least 6 months after purchase.
Any growth in your savings - through interest and dividends on investments - is taxed while it's in your KiwiSaver account. (The tax will be deducted by your scheme provider - you won't have to do anything except make sure your provider is taxing you at the correct tax rate. Your provider will ask you once a year what the rate should be). So when you come to withdraw your savings at age 65, the payout will be tax free.
The amount of tax you pay on investment returns will depend on what type of scheme you're in.
If you're in what's called a widely held superannuation fund, your returns will be taxed at 28%.
If you're in what's called a portfolio investment entity (often referred to as PIEs), your tax rate will depend on your income. It'll be 28% if your taxable income was above $48,000 or your income plus investment returns was above $70,000 in both of the previous two income years. If you earned below those levels, your investment will be taxed at 28%, 17.5% or 10.5% depending on the level of your income plus investment returns (see ird.govt.nz).
That means the tax you pay on KiwiSaver returns is likely to be below your usual tax rate.
You can't get at your KiwiSaver savings until you're eligible for NZ Super - currently, that's at 65. You also have to invest for at least five years, so if you start at age 62 you'll have to wait until you're 67 to withdraw your savings.
You may be able to withdraw your savings earlier if you suffer significant financial hardship or serious illness, go overseas permanently, or want to buy a first home.
If you die before you reach 65, your savings will be paid to your estate. If you move permanently overseas, you can withdraw your KiwiSavings 12 months after you leave (this includes the $1000 government kick-start contribution if you received it, your employer's contributions, and your contributions but not any member tax credits). From July 2013 this will not apply when moving permanently to Australia. The New Zealand and Australian governments have worked on an agreement which will allow you to either leave your funds in a New Zealand KiwiSaver scheme or transfer the funds to an Australian Complying Superannuation Scheme. For more information contact your KiwiSaver scheme provider.
Some KiwiSaver providers will let you take your money out in instalments. Others will only allow withdrawal.
KiwiSaver’s slightly different for self-employed people.
The government will still give you a tax credit of up to $521.43 a year. But unless your business pays you a salary or wage from which PAYE is deducted, you won’t have to contribute the fixed 3%, 4% or 8% of your income that employees have to. Instead, you'll agree with your provider how much you'll pay into the scheme and how often, and you'll need to make the contributions yourself.
You can find out more about how KiwiSaver works for the self-employed from kiwisaver.govt.nz. Make sure you understand the rules and talk to your accountant before you join a KiwiSaver scheme.
Some issues to discuss with your accountant are:
*Does it make sense to join KiwiSaver – or are you better off putting that money into developing your business?
The KiwiSaver (Periodic Disclosure) Regulations 2013 require all publicly available KiwiSaver schemes to report in a simple form on fund performance, fees, asset allocation and other matters (see below for more detail).
This reporting must be done as quarterly and annual “disclosure statements”, which must be published on the provider’s website in a standard template that includes graphs and pie charts.
The information must also be made available in a standard spreadsheet that can be used for further analysis.
KiwiSaver disclosure statements must contain this information about each of a scheme’s funds:
Sorted.org.nz has used the disclosure information to produce a free “KiwiSaver fund finder" that lets you compare funds online.
The fund finder allows comparisons of returns, fees and services (the services from each provider have been given a “percentage” value). You can also see other information such as which assets each fund invests in and what its top 10 investments are. You can also create a list of funds that suit your risk-profile and then sort those funds on the basis of fees, customer service or returns – and you can make a “watch-list” of funds you want to keep an eye on.
When you’re comparing funds, you’ll need to look at their performance over a longer period than quarterly or even annually. KiwiSaver is for retirement – and that might be quite some years away.
A professional fund manager invests your KiwiSaver money, so you can’t avoid paying fees. When you’re comparing fees, look at both the membership fees and the fund fees. Membership fees are fixed. Fund fees often include an annual management fee, a performance-based fee, and other fees and costs.
Actively managed funds tend to have higher performance-based fees than more passive funds. But don’t judge funds on fees alone – and remember that funds with high fees don’t necessarily perform better than funds with low fees.
Tip: Not contributing regularly? Be careful your balance isn’t being eroded by fees.
It’s relatively easy to change your provider or your fund. If you’re staying with your provider and just changing funds, you might be able to do it online – most providers don’t charge for this. But changing providers means you need to fill in a form with the new provider. It’ll let Inland Revenue know about the change and will arrange for your money to be transferred – which should take about 10 to 35 days. However, a few providers charge a fee for leaving their scheme and this could be up to $100.
Your provider can tell you which of the 4 schemes it belongs to, or check on the Companies Office website.
The Insurance and Savings Ombudsman
The ISO deals with complaints about insurance and savings products - but only if your provider is a member of the scheme and only if you're an individual KiwiSaver not a member of an employment-related group scheme.
The Banking Ombudsman
Investigates and resolves disputes between customers and their banks/financial service providers. Can only deal with their scheme participants.
Financial Disputes Resolution (FDR)
Settles disputes between consumers and the organisations that provide them with financial services. Owned and managed by the Ministry of Consumer Affairs. Your financial service provider must be a member of the FDR scheme for you to be able to use this service.
Financial Services Complaints Ltd (FSCL)
A not-for-profit dispute-resolving scheme for organisations and people outside the banks and insurance companies.
The Financial Markets Authority
The FMA has taken over from the Government Actuary as a regulator of KiwiSaver schemes.
Inland Revenue's KiwiSaver Call Centre
The Commission for Financial Literacy and Retirement Income website: www.sorted.org.nz
Consumer's member advisory service
If you're a member, get advice on your KiwiSaver dispute from our Consumer Advisors.
Some KiwiSaver terms explained:
Aggressive funds are invested mainly in shares and/or property with the aim of achieving high growth over a longer timeframe. This is the highest risk option.
Balanced funds are split fairly evenly between higher risk investments such as shares and property, and other lower risk investments including cash and fixed investments. This is a medium risk option.
Your investment in a savings scheme.
Low-risk assets which are similar to bank deposits or bank bills.
Cash funds are low risk and may be a wise option if you're planning to retire in the next few years - but don't expect high growth.
Conservative funds are a low risk option. The KiwiSaver default schemes are conservative funds. Usually about 10-35% of the funds is in higher risk assets such as shares and property.
The money paid by you or your employer into your KiwiSaver scheme.
An independent assessment of a company's ability to meet its financial commitments. Kiwisaver schemes do not have credit ratings yet. However, some companies providing schemes have ratings. While the rating does not directly apply to individual schemes it may give some indication of the financial strength of the provider.
The KiwiSaver scheme you'll be enrolled in if neither you nor your employer chooses one. There are 9 default providers, each with one default scheme. All default schemes are conservative.
These include cash, fixed interest investments and mortgages. They're lower risk but generally earn a lower return.
A generic term for shares - generally in publicly listed companies.
Assets that are passed on when you die.
Typically bank deposits and bonds or similar which have a longer maturity term than 90 days.
Shares, property and other investments that have potential to earn higher returns but also carry higher risk.
Growth funds are usually about 63-90% invested in growth assets. This is a medium-high risk option.
A subsidy of up to $5000 over five years for some first home buyers who are saving in KiwiSaver, administered through Housing NZ. For those buying or building a new home, or purchasing land to build a new home the grant is up to $10,000 over five years.
To get the first home deposit subsidy your before-tax household income must be under $80,000 (for 1 person) or $120,000 (for 2 or more people).
Advice from a trusted, professional financial advisor - this is essential before you decide on a savings scheme.
Money placed in an asset with the aim of getting a return (which may be in the short-, medium-, or long-term).
A fund where investment risk is automatically adjusted according to age.
A collection of investments such as shares, property etc.
A company approved by the Government Actuary to provide KiwiSaver schemes. Return Profit or loss on your investment - usually expressed as a percentage. A higher return usually means a higher risk.
The probability that an investment will fail and you'll lose part or all of your capital. A higher return usually means a higher risk.
Your personal perception of the inherent risk of an asset.
A savings product offered by a KiwiSaver provider.
A government rebate offered annually to most taxpayers for contributing to a KiwiSaver scheme.
For savings schemes, from 10.5% to 28% of income, depending on your salary and income from investments, and whether you are in a PIE.
|AmanahNZ KiwiSaver Ltd||www.amanahnz.com||0508 262 624|
|AMP**||www.amp.co.nz||0800 808 267|
|ANZ Investments**||www.anz.co.nz||0800 736 034|
|Aon New Zealand Ltd||www.aonkiwisaver.co.nz||0800 266 463|
|ASB Group Investments Ltd**||www.asb.co.nz||0800 272 738|
|BNZ**||www.bnz.co.nz||0800 269 5494|
|Booster Financial Services**||www.booster.co.nz||0800 336 338|
|Civic AssuranceA||www.supereasy.co.nz||04 978 1250|
|Craigs Investment Partners Ltd||www.craigsip.com||0800 878 278|
|Fisher Funds Management Ltd||kiwisaver.fisherfunds.co.nz||0800 335 494|
|Fisher Funds Management Limited**||www.ff2kiwisaver.co.nz||0800 204 060|
|Forsyth Barr||www.forsythbarr.co.nz||0800 367 227|
|Generate Investment Management||www.generatekiwisaver.co.nz||0800 855 322|
|Kiwi Wealth Ltd**||www.kiwiwealth.co.nz/home||0800 427 384|
|Medical Assurance SocietyA||www.mas.co.nz||0800 800 627|
|Mercer (NZ) Limited**||www.mercerkiwisaverscheme.co.nz||0508 542 578|
|Milford Funds Ltd||www.milfordasset.com||0800 662 345|
|NZ Funds Management Ltd||www.nzfunds.co.nz||0800 693 5494|
|New Zealand HarboursA||www.harbourssuper.org.nz||04 499 0277|
|New Zealand Anglican ChurchA||www.koinonia.org.nz||0508 738 473|
|SBS Bank||www.lifestages.co.nz/kiwisaver||0800 502 442|
|Smartshares Limited||www.smartshares.co.nz||0800 808 780|
|Staples Rodway||www.staplesrodway.com||0800 446 499|
|SuperLife Ltd||www.superlifekiwisaver.co.nz||0800 278 737|
|Taupo Moana Iwisaver Ltd||www.iwiinvestor.co.nz||0800 494 123|
|Westpac**||www.westpac.co.nz||0508 972 254|
A = not open to all members of the public
** = default providers
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