What is KiwiSaver? Dive into the essentials of KiwiSaver. Follow our in-depth guide to understand its purpose, key features, benefits, and the role it can play in shaping your financial future.
Contents
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1. KiwiSaver background
2. KiwiSaver benefits
3. KiwiSaver management
4. KiwiSaver investing
5. KiwiSaver contributions
6. KiwiSaver transfers
7. KiwiSaver withdrawals
8. KiwiSaver life stages
Background
KiwiSaver is a long-term savings scheme, designed to help Kiwis save for their first home or retirement.
KiwiSaver’s origins
KiwiSaver was launched by the government in July 2007, and immediately became popular – less than a year later, in March 2008, more than 700,000 Kiwis had joined. While it was introduced by Labour, KiwiSaver has broad support across the political spectrum.
There have been quite a few changes to KiwiSaver over the years. For example, when it first launched, employers did not have to contribute to an employee’s fund at all. Now they must contribute at least 3%.
Today, KiwiSaver has more than 3 million members - and that number keeps growing, which we think is great news.
However, there are still many Kiwis who have not joined a KiwiSaver scheme or who have stopped making contributions. If you’re one of them, we hope you read on and discover why you may want to get your KiwiSaver sorted!
What is KiwiSaver’s purpose?
The main point of KiwiSaver is to help Kiwis save enough money for their retirement. (There also is a first home deposit component, but we’ll cover that later.)
Before we had KiwiSaver, retirement savings were left completely up to the individual – and many Kiwis didn’t save for their retirement at all.
While those who didn’t save for their retirement still had New Zealand Superannuation (NZ Super) to fall back on, for most people this wasn’t enough - and for the country as a whole - a lack of retirement savings often meant a more negative financial outcome.
The good news is that when Kiwis invest in KiwiSaver, they’re taking steps to ensure they can look forward to a much brighter financial future in retirement.
Joining KiwiSaver
Everyone who is living (or normally living) in New Zealand, and is a New Zealand citizen or permanent resident, can join KiwiSaver.
However, while kids can definitely join, they won’t benefit from all the advantages of KiwiSaver until they are over 18 - we’ll go into that in more detail later in this article.
You can even join if you are over 65 years, with no lock-in period, although there are fewer benefits – we’ll also go into that in more detail at the end of this article.
Read more here:
The difference between KiwiSaver and NZ Super
New Zealand Superannuation (NZ Super) is a benefit paid by the government to eligible Kiwis aged 65 and over. Once you’re approved for NZ Super, you’ll automatically receive a fixed payment into your bank account every two weeks.
On the other hand, KiwiSaver is an investment that you initiate and have some control over, and your account balance will grow based on when and how you set up your account. We’ll get to your KiwiSaver account settings later, but they include things like your income, your contribution rate, your employer’s contribution rate, your fund performance, how long you’re a KiwiSaver member.
Both NZ Super and KiwiSaver have a qualifying age of 65, meaning you generally can’t withdraw funds until you reach that age. However, you do not have to take everything out of your KiwiSaver account at age 65 - you can make regular lump sum withdrawals, or keep your money invested for longer to potentially earn even more returns.
NZ Super and the cost of retirement
NZ Super helps Kiwis cover the essential costs of living, but most people would not find it enough to live on by itself, especially if they live somewhere where the cost of living is more expensive, such as a major city. From 1 April 2024 until 31 March 2025, NZ Super is just over $27,000 per year for a single person living alone. (The amount varies depending on whether you are living with a partner or not.)
As the cost of living rises, it makes even more financial sense to save for your retirement with KiwiSaver, so that you won’t have to rely on NZ Super alone.
See what All Black legend Justin Marshall thinks about retirement and why he doesn't want to rely on NZ Super alone.
Let’s look at some of the reasons why joining KiwiSaver is a great financial choice.
Benefits of KiwiSaver
The genius of KiwiSaver is that it gives you benefits that you can’t get from any other investment. These include:
A minimum of 3% contribution from your employer
If you’re contributing to your KiwiSaver account from salary
or wages, your employer is required to put in a minimum of 3% of your before-tax
pay on top of your normal wages.
An annual contribution from the Government
For every $1 you put into your KiwiSaver account, the Government will add 50 cents, up to a maximum Government contribution of $521.43 per year. This KiwiSaver bonus is added to your KiwiSaver savings, every year in July or August.
To qualify for the maximum amount, you need to have contributed a minimum of $1,042.86 to your account within the last year (1 July - 30 June), be aged between 18 and 65 years, be mainly living in New Zealand, and have been a KiwiSaver member since at least 1 July of the previous year.
If you joined KiwiSaver after 1 July, or turned 18 or 65 part-way through the year, you could still be eligible for a pro-rata amount for the days you were eligible.
Find out more about the Government contribution.
Your KiwiSaver fund is held in a trust
You can have peace of mind when you invest in KiwiSaver because all KiwiSaver funds are held in trust – the government does not have access to this money and neither does your employer or anyone working for your KiwiSaver provider.
The Financial Markets Authority require each fund provider to have an independent, licensed supervisor and custodian.
At Generate, our independent supervisor and custodian is Public Trust, a crown entity.
You can withdraw funds towards your first home
A final key benefit of KiwiSaver is that if you have never owned a home before, when you've been a KiwiSaver member for three years, you may be eligible to withdraw funds from your KiwiSaver account to put towards your first home. This is a very helpful boost when you want to take that first step on the property ladder. However, some terms and conditions may apply.
After you have made a first-home withdrawal, you are still enrolled in KiwiSaver and can continue making contributions until your retirement.
Read more here:
If you’re already sold on all the benefits of KiwiSaver and don’t need to read any more, click here to sign up - It’s quick and easy to get sorted using our online application form. If you’re on board, but need a bit more info before you take the plunge, click here to find out how to choose the best KiwiSaver fund to suit your needs.
You can also make an appointment for a chat with one of our KiwiSaver advisers. They can come to you at a time that suits - it couldn't be easier.
Next, we’ll get into some of the nitty gritty details of KiwiSaver.
Management of KiwiSaver schemes
There’s a lot of infrastructure involved with KiwiSaver, and it’s all set up to ensure that everyone’s investments are protected and well-managed.
Who runs KiwiSaver?
KiwiSaver schemes are operated by independent, private providers. This includes banks and KiwiSaver providers like Generate KiwiSaver Scheme. You can choose which provider you want to sign up with.
Spoiler alert - there are lots of great reasons to choose Generate! Check them out here.
The Inland Revenue is the central administrator of KiwiSaver, but they do not manage anyone’s KiwiSaver investment. Their role is to provide information about KiwiSaver, keep track of overall KiwiSaver membership and ensure the employers’ contributions are passed onto the member's scheme provider via PAYE deductions, along with the annual distribution of government contributions.
Who can manage a KiwiSaver investment
All fund managers, including KiwiSaver providers, must be licensed by the Financial Markets Authority (FMA).
Directors and senior managers of the KiwiSaver schemes must be deemed "fit and proper.” The business must be capable of performing its job properly and the FMA must have no reason to think that it will breach any of its obligations to clients.
All schemes must also have an independent, licensed supervisor and custodian overseeing them (see above – Your KiwiSaver account is held in a trust).
KiwiSaver scheme closures
No KiwiSaver schemes have closed down yet, but some have merged with others. In that case your investment simply transfers to the new provider.
If a scheme ever did close down (which is very unlikely), the scheme's supervisor would appoint a temporary manager, who would run the scheme according to its original plan (e.g. investing in growth assets). As always, you are free to change into another KiwiSaver scheme at any time.
How your KiwiSaver investment works
How your KiwiSaver investment is run
Each KiwiSaver scheme has its own investment specialists who run the different funds, deciding when to invest and what to invest in, and in what proportions.
However, how much time and expertise are spent on running a fund will vary depending on the scheme.
Some schemes, for example some of those at large banks, are termed ‘passive’ because they are set up at the start, but then left to run according to fixed parameters. This is better known as ‘indexing’, where an investment manager simply buys a proportion of all the shares in an index, like the NZX50, and will generally receive a similar return as the market.
At Generate, we don’t take that approach.
We are an ‘active’ fund manager and have a full-time team of expert investment Portfolio Managers who run all our funds. Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold and sell.
We don’t ‘set it and forget it’ – we’re actively monitoring our members’ investments all the time, as we pursue the best long-term results we can. We look for tactical investment opportunities, and aim to protect asset values when the market is more volatile.
We’re proud of our track record - click here to see why.
Fund makeup
There are a mix of investments that make up a fund. The key is to diversify, rather than have ‘all your eggs in one basket.’ This means a fund will have some combination of:
Income assets:
Cash and fixed interest assets which generate income in the form of interest payments. Income assets are typically less volatile than growth assets, so while the returns will go up and down (and be negative at times) they won’t usually move to the same degree as growth assets. Over the long-term, income assets will usually provide lower returns than growth assets.
Growth assets:
Equities (shares) and property and infrastructure are referred to as growth assets because they have greater potential to achieve capital growth over the medium to long-term than income assets. They also involve more risk. Typically, the returns of growth assets will fluctuate more than income assets, and growth assets are more likely to experience periods of negative returns.
Depending on the type of fund, there may also be other elements, for example foreign currency.
Read more here
How a KiwiSaver account balance grows
All contributions (yours, your employer’s and the government’s) are all added to your KiwiSaver account and, if you are a Generate member, invested by our expert fund managers.
This graph shows how starting earlier with KiwiSaver can impact your account balance at retirement.
These simulated results show the positive effects of compounding returns for three investors in an aggressive fund:
Investor A starts saving at age 20, with a starting salary of $35,000.
Investor B starts saving at age 30, with a starting salary of $45,000.
Investor C starts saving at age 40, with a starting salary of $55,000.
Assumptions: Each investor has a starting balance of $20,000. Each investor remains employed at all times until their retirement at age 65. No withdrawals are made. Their salaries grow by 3.5% per annum, and they earn a 5.5% per annum return after taxes and fees. Each investor continues to receive the full government contribution. Each investor is invested in an aggressive fund. Inflation is assumed to average 2% per annum. The investors and their employers each contribute 3% of the investor's before-tax pay into the investor's KiwiSaver account. The employer's contributions are net of employer's superannuation tax at current rates. Balances are expressed in real terms as a current dollar amount.
Disclaimer: This illustration used assumptions provided by the Government intended to illustrate the benefits of investing early. The illustration above does not reflect the prospective performance of the Scheme or any fund. Returns to members of the Scheme are subject to investment and other risks (including potential losses). No returns are guaranteed or assured, and returns at times can be negative, particularly given the length of the investment period shown in the illustration. Past performance is not necessarily an indicator of future performance and returns over different periods may differ.
These investments are intended to increase in value over time, and in turn, grow your KiwiSaver savings. However, it's important to remember that investments can go up and down from month to month – this is a normal part of investing. Because KiwiSaver is long-term savings plan, you generally shouldn't be concerned about short-term fluctuations in the market.
The earlier you start, the better off you will be. Starting early allows you to take advantage of compounding investment returns and generous Government incentives.
Read more here:
Choosing the right fund
Your KiwiSaver account has two ways of growing – through contributions (how much money you, your employer and the Government put in) and through returns (how much your investment earns).
When it comes to returns, your fund choice is one of the most important factors. The higher your net returns, the bigger your KiwiSaver account will be at retirement.
Most funds can be broadly categorised in order of how much risk they assume, from least to most: defensive, conservative, moderate, balanced, growth and aggressive (at Generate we call this last one Focused Growth). See our KiwiSaver fund options here.
As a general rule, the earlier you start your KiwiSaver account (i.e. the longer you have until retirement), the more aggressive you can be with your choice of fund*. That’s because aggressive or growth funds historically have the best potential for growth. By sticking with them over many years, you don’t need to worry about ups and downs in the short term.
Remember that all investments can go up and down from month to month – this is a normal part of investing.
* The exception to this rule is if you are planning to buy your first home or nearing retirement in the next two years – then you could consider a more conservative fund. Our Generate KiwiSaver adviser can help you figure all this out with an easy no-obligation chat.
Read more here:
Taxes and fees
KiwiSaver schemes are a Portfolio Investment Entity (PIE) and you will pay tax on the return on your KiwiSaver account, this is based on your Prescribed Investor Rate (PIR).
If your KiwiSaver started the year on $10,000 and ended the year on $11,000 then your tax would be calculated on the $1000 increase in balance. Your provider will pay this amount directly to the IRD on your behalf – you do not need to do anything.
As for fees, most KiwiSaver funds charge a percentage of the total amount invested as a fee, and may also charge a small fixed rate annual administration fee.
When it comes to comparing providers, keep in mind that just comparing fees doesn’t tell the whole story. Even though one scheme’s fees may be lower, their investment returns may be lower too – therefore it pays to compare ‘returns minus fees’ to get the full picture.
Read more here:
Contributing to KiwiSaver
KiwiSaver is not compulsory
KiwiSaver is a voluntary scheme and you are not obligated to join. However there are so many great benefits to KiwiSaver that we think you’d be silly not to take advantage of them. We recommend starting as soon as possible, to get the best long-term returns for your retirement.
See what comedian, Dai Henwood, has to say about KiwiSaver
Putting money into your KiwiSaver account
If you’re employed, your contributions will likely mainly come out of your salary or wages. You can choose how much of your income (before tax) you want to contribute to your KiwiSaver account, either: 3%, 4%, 6%, 8% or 10%.
Once you have signed up for KiwiSaver (through your employer), your KiwiSaver contribution will be deducted from your gross pay each time you are paid, whether that is weekly, fortnightly or monthly. You will be able to see this deduction on your paycheck.
You can also make voluntary additional contributions at any time, to add to your KiwiSaver investment.
Pausing KiwiSaver (savings suspensions)
If you are an employee, you are required to contribute to KiwiSaver for a minimum of 12 months before you can apply to suspend your contributions.
If you’re self-employed or work freelance
If you're self-employed or unemployed, you can choose how much you'd like to contribute to your KiwiSaver account, and make lump sum deposits or set up a direct debit. Because you don’t have an employer, you do not receive the 3% contribution from an employer or a salary, but you are still eligible for the government contribution.
Changing jobs
If you change jobs, your KiwiSaver contributions will continue as the details about your fund is connected to your IRD number. All you need to do when starting a new job is fill out the IRD KS2 deduction form from your new employer – your KiwiSaver investment stays the same no matter what job you are in. This makes it easy to keep track of over your whole lifetime.
Joining KiwiSaver without specifying a provider
If you do not select a particular provider, you will be enrolled in a default KiwiSaver scheme. There are six of these, all chosen by the government, that you can be allocated.
A default scheme is designed to be a ‘parking space’ to look after your money until you have made a more informed choice about which fund provider you wish to go with and what type of fund of theirs you want to choose.
A default scheme is generally a bit more conservative (it’s a balanced fund) and would rarely be the best choice for long-term growth. By staying in a default scheme and not assessing the right fund choice for you, you could be missing out on potential returns over the long term. Read more here on choosing the right KiwiSaver fund.
Optimal contribution rate
This will always depend on your personal situation. For example, some employers will match your contribution up to 4% (rather than the mandatory 3%) so if that’s the case in your workplace, it would probably make sense to up your rate to 4% so you can get the full benefits. It will always depend on how much you can afford, as well as your long-term goals.
To see the difference your contribution rate can make over time, we recommend talking to a KiwiSaver adviser. If you'd like to connect with one of us at Generate, click here.
Read more here:
Transfers to your KiwiSaver account from overseas
Since the UK law changed in April 2015, you cannot transfer money from a UK pension scheme into your KiwiSaver account.
However, if you’ve worked before in Australia, the good news is that you can transfer your Aussie super money into your KiwiSaver account.
Australian Super transfers
If you’ve worked in Australia before and had a super fund with an Aussie provider, you will be able to transfer this money into your KiwiSaver account.
This will either come directly from the Aussie super fund, or from the Australian Tax Office (ATO), depending on a few factors. You can read all about these two options here:
Withdrawing from KiwiSaver
When can you withdraw your money?
KiwiSaver is a long-term savings plan, designed to help set you up for later in life. As KiwiSaver is designed for retirement, you are not able to access these funds whenever you like. That applies to all KiwiSaver providers, not just Generate.
There are typically only two times in life when you will be able to tap into your KiwiSaver savings:
- When you are buying your first home. Find out about first-home withdrawals.
- When you reach NZ Superannuation age (currently at 65 years)
Withdrawing KiwiSaver money at age 65
There are a few options to choose from here. You can take out all of your savings as a lump sum and close the account. Or what many savvy Kiwis do is set up regular payments from their KiwiSaver account to their bank account, giving themselves an “income” while keeping the rest invested.
If you don’t need the money immediately, you can also leave it invested in your KiwiSaver account to potentially earn more returns and withdraw at a later date. It’s a great idea to talk to a KiwiSaver adviser about your next steps after age 65.
You may be able to make an early withdrawal in limited circumstances
- Significant financial hardship
- Serious illness
- A life-shortening congenital condition
- Deceased estate
- Permanent emigration
- If you are moving to Australia, Trans-Tasman transfer to an eligible Australian Superannuation provider
The first three of these are evaluated and assessed by the fund’s supervisor. At Generate we can help our members present everything they need to make a case for a hardship withdrawal, but we don’t make the decision on whether a withdrawal is allowed. (It’s up to our supervisor, Public Trust.)
Read more here:
KiwiSaver through life’s stages
KiwiSaver is a long-term savings plan, so there are many ages where it can impact you. Here are some key milestones.
Before you turn 18
Anyone can open a KiwiSaver account, but you will not receive the government contributions before you turn 18. Your employer also does not have to contribute to your KiwiSaver until then (although some of them occasionally do, which is a special bonus.) The real benefits of KiwiSaver kick in once you turn 18.
Read more here:
After age 65
You can now join KiwiSaver at any age, even after age 65. You don’t have to fully withdraw from KiwiSaver at that age either - you can continue to work and contribute. However, your employer does not have an obligation to contribute once you’re 65 (although, some may continue to do so) and you do not receive the Government contribution.
Read more here:
That’s a wrap for our deep dive into KiwiSaver – its background, benefits, management, contributions, transfers, withdrawals and life stages. To learn more about KiwiSaver, our friendly advisers are always help with a no-obligation chat.