KiwiSaver guide

What is KiwiSaver?

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.

Types of investment

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:

• Defensive funds are the most conservative type of fund (mainly cash and fixed interest only) 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 another low risk option. The KiwiSaver default schemes are conservative funds. You'll be allocated a default scheme only if neither you nor your employer has chosen your own preferred scheme. Usually, about 10-35% of the fund is in higher risk (growth) assets such as shares and property.
• Balanced funds are split more evenly between growth assets (35-63%) such as shares and property, and lower risk investments including bank deposits and fixed investments. This is a medium risk option. You should not be intending to withdraw your investment within the next 5 to 12 years.
• Growth funds are for the longer term investor intending to leave their money in KiwiSaver for at least 10 years. Growth assets will make up 63-90% of the investment. This is a medium to high risk option.
• Aggressive funds are invested mainly in growth assets (over 90%). They are aiming for strong long term growth but there will be ups and downs along the way. This is the highest risk option.

Is KiwiSaver for me?

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:

• Can you afford the contributions?
• How much money do you think you will need to ensure a reasonable standard of living in retirement? A couple on NZ Super gets just under $580 a week after tax and a single person living alone gets just under $375. Could you live comfortably on that for, say, 15 or 20 years?
• Do you want the security of your own retirement nest egg - either for emergencies or if the NZ Super age of entitlement or rate is changed in the future?
• Do you want to pay off other debts - such as your mortgage, hire purchase or credit card debts?
• Do you already have a savings scheme? You can join KiwiSaver irrespective of whether you have another retirement fund - however in some cases you may be able to transfer your existing savings into a Kiwisaver scheme (check with your employer or fund manager). However it would be wise to seek independent advice.

Joining KiwiSaver

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.

Choosing a scheme

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:

• How much risk you're prepared to take - some schemes will play it safe to protect your capital, while others will take a few more risks with the aim of achieving long-term growth. The type of investment you choose will depend on several factors including how close you are to retirement. There are 5 types of KiwiSaver investment: defensive, conservative, balanced, growth and aggressive.
• The fees - fees on savings schemes can vary widely. High fees can eat into your savings, and over a period of 10 or 20 years a small difference in the percentage of fees charged can make a large difference in your total savings.
• The features - some schemes provide features such as first home buyer assistance and the ability to invest lump sums. Choose a scheme that has the features that you want.

You may also want to check with the provider which of the disputes resolution schemes they belong to.

Spreading the risk

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.

Lifestage options

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.

The extras

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.

KiwiSaver contributions

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.

Government 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.

Employer contributions

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

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.

More than one job?

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 and home buying

First home savings withdrawal

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.

Home Start Grant

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.

KiwiSaver and tax

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.

Tax on your investment

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.

Withdrawing your savings

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 for the self-employed

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?

• If you decide to join, how much should you contribute?
• How often should you pay in? You and your accountant need to look at your cash flow and decide whether regular fortnightly or monthly contributions are manageable or whether you should pay once or twice a year. Make sure any lump sums don’t clash with your GST and provisional tax payments or any other large annual payments, such as insurance.
• Are there any tax advantages for you? Is changing to a company structure worthwhile for other reasons apart from KiwiSaver?

KiwiSaver returns

Disclosure

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:

• A description of the fund in terms of its total value, the number of members and the date it started. Membership fees (stated in dollars and as an annual amount).
• “Fund fees” broken down into 3 categories (the annual management fee, the performance-based fee, and other fees and costs) and shown as a percentage of the total money invested.
• Its annual returns after deductions for fees and tax for each year since the fund started and also its average annual return over that time (the tax rate that’s used here will be the highest prescribed investor rate (PIR) for a New Zealand citizen – your own tax rate may be lower).
• The “assets” that the fund invests in (with each one shown as a percentage of the total investments) plus the target investment mix.
• Its top 10 investments – and what percentage they are of the fund’s total assets.
• Key personnel – that is, the directors and employees who have the most influence on the fund’s investment decisions.
• Information on how the fund is run (for example, whether there are any related-party transactions) and any changes to proxy-voting policies or to a fund’s valuation or unit-pricing methods.

Online fundfinder

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.

Performance and fees

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.

• Try to compare apples with apples. Even funds of the same type won’t always invest in similar assets – for example, two funds might both be “balanced” but one could hold significantly more shares and property, and this could be driving its recent performance.
• Don’t switch funds in an attempt to chase past performance. What did well in the past could do badly in the future (and vice versa).

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.

Changing providers

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.