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The current cost of living has not been kind on our savings (Image: CSA Images via Getty)
The current cost of living has not been kind on our savings (Image: CSA Images via Getty)

MoneyNovember 6, 2019

Understanding KiwiSaver, part one: The basics

The current cost of living has not been kind on our savings (Image: CSA Images via Getty)
The current cost of living has not been kind on our savings (Image: CSA Images via Getty)

How to stop procrastinating and actually (finally) get on top of KiwiSaver. Because there’s a good chance that if you’re reading this, you don’t know a single thing about it. 

Read the full series here

I don’t actually remember ever starting a KiwiSaver, and that’s because I didn’t – my parents started one for me. Ever since then, KiwiSaver’s been one of those things that’s followed me around for my entire adult life, popping up on my paychecks, my bank statements, my daily drip-feed of news – wholly unintrusive, but unmistakably there. 

But sometimes I forget it’s there, as do a lot of people in their twenties, working in full-time salaried employment and left with barely enough mental/physical muster to think past next week, let alone 40-50 years ahead of time. It sits there idly, growing in size, but it could be much bigger and better, if only we put just a little bit more thought into it. 

The problem is, a lot of us don’t understand KiwiSaver. I don’t understand KiwiSaver: I don’t understand how it works, where it comes from, and what I’m supposed to actually do with it. But I want to understand, and I want others to as well. The pessimist in me thinks none of this matters – by the time I’m 65, we’ll probably be nearing some sort of climate change-induced apocalypse where all sense of monetary value has collapsed anyway. But the optimist in me – as timid as she can be – tells me we’ll be fine, we’ll keep going, and that one day, we’ll all have the chance to retire into blissful old age. 

So with a little help from Sorted (and a lot of help from its managing editor, Tom Hartmann) here’s what you need to know to get ready. Because the sooner you do it, the better, and what better time is there than now? 

What is KiwiSaver? 

KiwiSaver is a scheme that helps us save for retirement. It was set up by the government more than a decade ago (2007 to be exact) as a way for us to build a nest egg of cash that doesn’t require us to rely entirely on NZ Super, aka the government pension that’s paid out to all New Zealanders over the age of 65. How much you get with NZ Super is inflation-adjusted year-on-year, but it isn’t a whole lot to live on (especially if you want to be living that swanky life), and in the future, who knows? It might even cease to exist.

How is it helping me save for retirement? 

What it does is it takes a small percentage of your pay (salary if you’re on a fixed amount, wage if you’re being paid by the hour) to put into your KiwiSaver account, kind of like how you put a portion of your pay into a savings account for a new car, a trip around Europe or for when your fridge inevitably breaks down.

The difference with KiwiSaver is you won’t be able to withdraw those funds whenever you like. Most humans are naturally inclined to spend when they have access to a large sum of money (hence it takes months, even years, to get that new car or trip around Europe), so other than rare exceptions, you won’t be able to touch your KiwiSaver funds until you: a) turn 65, or b) want to buy your first home.

KiwiSaver also helps you save for retirement by giving you money, and by that, I mean that if you’re contributing a portion of your pay to your account, your employer and the government will contribute to your account as well. For employers*, they’ll contribute at least 3% of your pre-tax salary or wage to your KiwiSaver, while the government will contribute 50 cents for each dollar you contribute (the maximum being $521.43 per year).

What goes into most KiwiSaver accounts

How much do I have to put into my account?

You can choose to put in 3%, 4%, 6%, 8% or 10% of your gross (before tax) salary or wage. So say you earn $500 per week: you can choose to contribute $15, $20, $30, $40 or $50 of that $500 to your KiwiSaver account. 

Alternatively, you can contribute nothing at all. KiwiSaver is a voluntary savings scheme meaning if you don’t want to contribute then you don’t have to. Keep in mind though that most people get automatically enrolled in KiwiSaver when they start their first job, so if you don’t want to pay anything, you’ll have to consciously opt-out. 

Who can join? 

Pretty much anyone, really. Adults, children, over 65s… as long as you’re a New Zealand citizen or entitled to live in New Zealand indefinitely. You’ll also have to live (or normally live) in New Zealand.

How does KiwiSaver work if I want to use it to buy my first home?

If you decide you want to be a homeowner, then you may be able to make a one-off withdrawal from your KiwiSaver account. To be eligible, you a) have to be a KiwiSaver member for at least three years, and b) Intend to actually live on the property (aka you’re not purchasing the house as an investment). If you want, you can apply to withdraw all your savings, but you’re required to leave at least $1,000 in your account. 

So this KiwiSaver account… where exactly is it?

The short of it is that your account is held by a KiwiSaver provider, usually a bank (eg: ANZ) or an investment company (eg: Milford) and not the government. If you don’t know who your provider is, contact Inland Revenue (or log in to your MyIR account if you have one) to find out. And don’t worry: not knowing is a lot more common than you think. 

According to one 2016 study of almost 800 KiwiSaver members, 14% of people couldn’t name their provider, and the truth is that for a long time, neither could I. I was in my mid-teens when KiwiSaver first started and my parents signed me up purely because it would bag me a free $1,000 from the government (aka the kick-start payment which no longer exists). As an incentive to join, it worked wonders. But for many like myself or those who were automatically enrolled through work and never thought about it again, it meant assuming a passive, often uneducated role in one’s KiwiSaver account. Hence, why we’re all here now: swimming in the same pool of financial ignorance. 

And what can I do to escape this pool of financial ignorance?

Honestly, if you’ve made it this far in the piece, then you’re already one step closer to being enlightened. KiwiSaver is just one part of the financial journey, but it’s an important part – one in which we’re supposedly missing out on earning tens of thousands of dollars because we’re in the completely wrong fund. In fact, it’s all about the fund, which will all be explained in part two.

* There are some exemptions to this rule, like if your employer already offers a registered superannuation scheme or through “good faith bargaining”

Keep going!