Everything you need to know about KiwiSaver

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Everything you need to know about KiwiSaver

KiwiSaver turns ten years old on July 2nd, and since its introduction, it has provided an easy way for New Zealanders to save for their retirement. KiwiSaver began in 2007 as a government initiative to address New Zealand’s low levels of saving. It has proved popular; at the end of March 2016, there were just over 2.6 million members, according to a report published by the Financial Markets Authority. However, many Kiwis still aren’t aware of exactly how KiwiSaver works, and how they can make the most of it.

Who can join?

If you’re a New Zealand citizen or allowed to live in New Zealand indefinitely, and you normally live here, you can join KiwiSaver up to the age of 65. You can even open a KiwiSaver account for your children.

How does it work?

When you enrol, you nominate a portion of your salary to go directly to your KiwiSaver account – either 3%, 4% or 8%. If you’re a wage or salary earner, your employer must match your contributions by at least 3% of your salary each year. Additionally, if you save $1,042.86 or more each year, the government will contribute a ‘member tax credit’ of $521.00. The money goes into managed funds which are looked after by an approved KiwiSaver provider. These funds invest in things such as cash, bonds, property and shares, aiming to generate a good long-term rate of return. You cannot withdraw your funds, except in very special circumstances, until you turn 65.

Did you know?

Many people just sign up to KiwiSaver and forget about it, but here are some tips to help you get the most out of your investment.

  1. The earlier you start, the less you have to contribute to reach your goal. That’s because you benefit from compounding returns. If you leave it until later in life to join, you’ll need to put in more money just to end up with the same amount at retirement.
  2. You don’t have to go with your employer’s default scheme. Find out who is managing your company’s KiwiSaver fund and check them out. If you find another provider that you prefer, you can switch to them at any time. Different providers achieve varying results and charge different fee structures, so it pays to do your homework.
  3. You can change your investment profile. Each KiwiSaver provider will offer a choice of investment funds with different risk profiles. Low-risk funds offer more protection from market fluctuations but generally achieve lower returns. Higher risk funds, more suitable for long-term saving, may go up and down more often but achieve a better return overall. When you enrol, you’ll automatically be set to the default investment profile. By changing the way your KiwiSaver contributions are invested, you could improve your retirement returns significantly. Talk to us at True North Investments about the best way to structure your KiwiSaver investment.
  4. You can take a contribution holiday. If you need some extra money in the short term, you can apply to take a break from contributing to KiwiSaver for any amount of time between three months and five years. There’s no limit to how many holidays you can take, but be aware it will affect how much you manage to save overall.
  5. You can use your KiwiSaver to help you buy your first home. If you meet certain criteria, you will be able to withdraw all bar $1000 of your funds to go towards a house deposit. You may also be eligible for a KiwiSaver HomeStart Grant.
  6. You can still contribute if you’re self-employed or not working. In this case, you don’t have to contribute a set percentage of your income. You can agree on an amount with your KiwiSaver provider and deposit it directly.
  7. In some circumstances, you can access your savings before age 65. These include instances of serious financial hardship, serious illness, or if you permanently emigrate to another country (except Australia).

Why should I join?

KiwiSaver has many benefits. It makes saving for your retirement easy by deducting a small amount directly from your salary each payday, so you don’t even miss it. Everything is already set up, so you don’t need to provide a large up-front deposit, or know a lot about investing, to get started.

If you’re a salary or wage earner, the fact that your employer and the government are supplementing your contributions means that you’re basically getting extra money for free!

New Zealand’s National Superannuation allowance is already a very modest payment. By the time you reach retirement, it may not even provide a living income. By providing for yourself with KiwiSaver, you’ll have the peace of mind that you’ll be able to enjoy your retirement and maintain the kind of lifestyle you’re used to, even if National Superannuation has disappeared altogether.

Whether you’re new to KiwiSaver, or you’ve been contributing for years but are not sure if your scheme is set up optimally, the team at True North Investments can help you ensure you’re making the most of your retirement savings plan.