Insights
What is KiwiSaver - the basics
If you don’t fully understand KiwiSaver, you are not alone. To help you out, here are the basics...
What is KiwiSaver?
KiwiSaver is an easy and affordable voluntary savings scheme set up by the government to help New Zealanders save for their retirement. Most people can benefit from joining KiwiSaver, if you haven’t already.
Here’s how it works:
If you are an employee and over 18 then KiwiSaver contributions can be automatically deducted from your payslip through the IRD, you can choose your contribution rate of 3, 4, 6, 8, or 10%. Employers are required to match employee salary contributions at a minimum rate of 3% of staff salary/wages.
If you are a contractor, you are responsible for making your own contributions. You can do this as often and as little as you like.
A KiwiSaver account can stay with you for your entire career, or you can switch between providers easily. Your savings can be turned into normal investment fund after age 65, continuing to grow the balance whilst being able to make regular withdrawals.
KiwiSaver is intended for retirement. However, there are certain circumstances in which you can access the savings earlier, buying your first home, moving overseas permanently, financial hardship and serious illness.
Is your money safe?
Pathfinder is a licensed KiwiSaver provider regulated by the Financial Markets Authority with the IRD as central administrator.
When you invest your money with Pathfinder, the money is held by an independent custodian, for Pathfinder this is Public Trust. The custodian is completely independent of Pathfinder and if Pathfinder as a business ceased to exist your investment would be transferred to another manager.
Where does my KiwiSaver money go?
Inland Revenue is the central administrator of KiwiSaver. They keep track of overall KiwiSaver membership and ensure KiwiSaver deductions from employers are passed onto the member's scheme provider (like Pathfinder), and into your KiwiSaver account.
The fund’s assets and cash are held by Public Trust as the fund’s custodian. Apex manages registry, pricing and accounting for your fund. This means they record the number of units you hold along with all relevant information about you, including your tax details. They also price the fund and pay tax on your behalf. Pathfinder, as your manager specify to Public Trust what assets they would like to invest in.
Making the most of government contributions
To help you save, the Government will make an annual contribution into your KiwiSaver account - as long as you're between the ages of 18 and 65.
The math is simple: for every dollar you put into KiwiSaver, the government contributes 50 cents, up to a maximum of $521.43.
To receive the maximum Government Contribution, you must have invested at least $1,042.86 (that’s just over $20 a week) into your KiwiSaver account between July 1st and June 30th. If you haven't been in KiwiSaver for 12 months, you'll receive a partial contribution on a pro-rata basis.
If you contribute less than $1,042.86 you will still get 50c for every $1 you contribute, for example, if you contribute $500 you would receive $250 from the government.
If you contribute less than $1,042.86 from your employee/pay contributions (note that your employer contributions don’t count) you can make a voluntary contribution to top up your account so that you do qualify for the full Government contribution. It's important this goes through before the 30th June each year.
How do you know which KiwiSaver provider is best for you?
Your KiwiSaver is an investment, and you get to choose the provider who manages that investment. Your KiwiSaver provider invests your savings with the goal of growing these savings for your retirement.
There are multiple KiwiSaver providers that offer a range of fund options these usually include aggressive, growth, conservative and balanced funds, but sometimes they have more specialised options too.
Things to consider when you’re picking a KiwiSaver provider:
How have they performed (what are their returns over a long period of time)?
Checking a providers performance gives you an idea of the kind of financial impact investing with them could have on the balance of your savings. Remember KiwiSaver is a long-term investment, so it is normal to see returns fluctuating. The Morningstar KiwiSaver Survey is a good place to look at different providers rates of returns over time but, it’s important to remember that past performance isn’t a reliable indicator of future returns.
Are they active or passive? An active manager, like Pathfinder, makes decisions on what investments to buy and sell. Whereas a passive manager tends to copy what the market is doing and buys an index. Passive managers often offer lower fees, while active managers charge higher fees for more services. It’s a personal choice, but keep in mind that active managers aim to beat the returns of the passive index funds.
How do they invest? There are different specialties of investing, as mentioned above, some are active, and some are passive, but others will invest with a particular philosophy, such as Pathfinder’s Ethical Investing Policy. Have a think about what is important to you
A financial adviser can help if you're not sure about any of the above. Sorted has advice on finding an adviser or you can call us on 0800 ETHICAL if you would like a no-obligation chat.
If you’d like to invest in line with your values. Mindful Money.nz is a great website to check what’s in your KiwiSaver fund. They have a great article and video on investing based on your values. Or you could take our values quiz.
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