6 reasons to become a raver about KiwiSaver

‍KiwiSaver is a unique policy gift to New Zealanders that can boost your money to live on in retirement (and can help you get a house to live in, too). Alex Brooks explains 6 surprising benefits of investing your hard-earned dosh with KiwiSaver.

By Alex Brooks

As New Zealanders, we like to do things differently. Aotearoa’s flightless bird, the kiwi, is known for its quirky appearance. New Zealand’s retirement income system is equally unique.

It’s called KiwiSaver: a low-fee voluntary savings and investment scheme to save for retirement or buying a house.

KiwiSaver helps build a retirement nest egg

Most of us know that KiwiSaver is an easy, low-fuss and automatic way to make sure you’re saving enough during your working years to have a decent retirement income once you are 65 and older.

It’s designed to supplement NZ Super - our universal pension scheme for all eligible New Zealanders over the age of 65 - so you can live better in old age than you could otherwise.

Given that NZ Super currently pays between $563.24 a fortnight up to $1043.24 (depending on your tax code and living situation) it’s easy to see the benefits of stashing more cash in your KiwiSaver today so you can live better later on.

The other bonus? You don’t pay any tax on money you withdraw from KiwiSaver after the age of 65.

KiwiSaver helps you save for a nest to live in, too

There are two simple things you need to aim for at retirement: enough money to live on and a property to live in. 

Working out whether to financially prioritise long term savings for a healthy retirement income or blow your savings on a house to live in can be a tough decision - so KiwiSaver lets you do both. 

Depending on which type of fund you’re in (more on that later), most KiwiSaver members can take out most of their savings to buy a first home and in some cases (if you’re a qualifying previous home owner) a second home. 

There are some conditions - you need to leave $1,000 in your account and have been contributing for 3 or more years. Not all funds allow withdrawals for your first home. It’s also healthy to ask whether buying a home with KiwiSaver is right for you - read the numbers on and how they stack up on Sorted. Read more about how to buy your first home using KiwiSaver and check if you qualify for a ‘second chance’ KiwiSaver if you have already owned a home.

Before 2015, some New Zealanders used KiwiSaver to buy property outside of New Zealand, but that’s no longer allowed.

Think of KiwiSaver like a lolly to eat after the main course of working hard

Saving a little bit of money today by putting it into KiwiSaver means having more money tomorrow.

Just like your parents made you eat your vegetables before serving dessert, KiwiSaver has been designed to reward you through delayed gratification. The government delivers your long-term savings an added sugar hit by also:

• Adding a government contribution of up to $521 every year (previously known as member tax credit).
• Having your employer contribute 3% on top of your own contribution (this varies, so talk to your boss about what they offer). 
• Letting you choose the right KiwiSaver tax rate (and type of fund) for your situation.

Tax and KiwiSaver can get confusing! To know your correct tax rate, you need to know which type of KiwiSaver scheme you have, which you can find out on your provider’s product disclosure statement. If your KiwiSaver plan is a widely-held superannuation fund, your investment earnings are taxed at 28%. But if your plan is a Portfolio Investment Entity (PIE), your tax rate depends on your personal situation and can be 28%, 17.5%, or 10.5%. 

This is especially important if you earn less than $48,000 a year, so read more on Inland Revenue to ensure you pay the right amount of tax. (If this sounds confusing or you want to get financial advice to make the best choice for your circumstances, read how to get your KiwiSaver on track and find a registered and qualified financial advisor.)

KiwiSaver is like a box of chocolates - you have to give to receive. With KiwiSaver, the more you commit to saving, the more you will have in the long run.

You can choose 5 different contribution rates from your before-tax pay to put in KiwiSaver - 3%, 4%, 6%, 8% or 10% - the choice, like a smorgasbord, is up to you.

Based on the latest Stats NZ figures, this is how the March 2024 average weekly earning of $1593 (around $83,000 a year) would stack up after 1 year, 3 years, 5 years and 10 years invested in KiwiSaver (excluding fees) and your different contribution rate*.

*Calculations are for illustrative purposes only and done in $NZ. Calculations assume the employee contributes the same amount as the employer, which may not always be the case. The government contribution remains static at $521.43, as does the investment rate of 7%. In reality, returns fluctuate based on the risk profile of a fund and market returns.

You can also use the Sorted KiwiSaver calculator to crunch the numbers on different scenarios and help decide what’s right for you. 

KiwiSaver is as aggressive or safe as you want it to be

All investments carry risk, but each KiwiSaver provider offers a range of different funds and investment styles to suit your personal tastes.

People who don’t like taking risks may want to consider a lower-risk fund and those happy to accept volatility in exchange for potentially higher returns may look at higher-risk funds such as growth or aggressive funds.

Depending on your provider, you might even be able to split your KiwiSaver between different funds. Read more on Canstar about this.

It’s always best to get the right financial advice for your particular circumstances and future goals.

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KiwiSaver survives and adapts alongside you

Naturally KiwiSaver moves with you every time you change jobs (or even leave work) but did you know that there are certain hardship circumstances that let you access KiwiSaver early?

Early access to KiwiSaver has important ramifications, so think carefully before you do it (you won’t have as much to spend in retirement, for example).

Hardship rules are another incentive to stash money into KiwiSaver - it can act as a ‘rainy day’ fund if the worst happens.

If you can provide evidence that you are suffering significant financial hardship then you may apply to access KiwiSaver early, but only if you:

• can’t pay the mortgage or rent
• need to pay for medical treatment or funeral costs.

You can’t access KiwiSaver to pay off credit cards, infringement notices, debt collectors or go on holidays (even to visit a sick relative). Read more about accessing KiwiSaver funds early.

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This article reflects the views and experience of the author and not necessarily the views of Citro. It contains general information only and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their personal circumstances before making any financial decisions.