All You Need to Know About KiwiSaver

If you want to build long-term wealth in New Zealand, it’s worth having a good look at your KiwiSaver. It could be the key to buying your first home, retiring comfortably or building long term wealth.

This complete guide to KiwiSaver is all about giving you the knowledge you need to help you do just that.

You’ll learn:

• What KiwiSaver is.
• Who can join?
• How to join.
• The benefits of being a KiwiSaver member.
• How to set goals for your KiwiSaver.
• How much you might need for retirement.
• How to choose the right fund for you.
• How to pick the right provider for you.
• How fees work.
• How to get the government contribution (“free” money!).
• When you can access your investment.

KiwiSaver is a voluntary investment scheme set up by the government in 2007 to help Kiwis save for retirement. The government sets the rules and regulates how KiwiSaver operates, but does not manage, own, or control the KiwiSaver providers that you invest in. Instead, your money is invested on your behalf by a range of independent licensed fund managers – in fact there are almost 30 providers you can choose from!

You can only have a single KiwiSaver provider, though you can switch your provider at any point in time. Most KiwiSaver providers allow you to sign up directly on their website. Each of these providers typically offer a range of different investment strategies that you can invest in (more on these later!).

You can choose to contribute *3.5%, 4%, 6%, 8% or 10% of your gross (before tax) wage or salary to your KiwiSaver account. Your employer has to contribute as well – at the very least 3.5% of your gross salary.

Along with KiwiSaver employer contributions, there’s an annual government contribution of up to $260.72.

*Note: This year, the minimum contribution rate has risen from 3 to 3.5%, with an additional increase to 4% expected in April 2028.

If you’re a permanent New Zealand resident over the age of 16, you can join KiwiSaver – you don’t have to sign up unless you want to, but there really is no reason not to open an account. At the very least if you have income under $180,000p.a., you want to consider meeting the minimum contribution to get that $260.72 from the government every year.

Once you join, your money is not accessible until either you qualify for New Zealand Superannuation (which is currently at age 65), or are ready to purchase your first home. There are only a handful of other scenarios in which you can get your money out earlier (more on these later).

Over 3 million Kiwis have already joined KiwiSaver! If you are new to the workforce, or are self employed, then there are three ways to join:

• Automatic enrolment with a randomly chosen default provider when starting a new job.
• Opting in through your employer.
• Opting in through a KiwiSaver provider – just reach out to a provider that suits you and get started.

The question isn’t why join KiwiSaver - it’s why not? There are so many benefits, and signing up costs you nothing.

• KiwiSaver contributions come out of your pay before you see it. This makes saving easy – just like our suggested Pay Yourself First budgeting rule.
• If employed, your employer has to contribute at least 3.5%* of your gross wage or salary into your KiwiSaver account. That’s on top of your own contributions. Check out our guide to KiwiSaver contributions.
• The government pays an annual contribution into your KiwiSaver account (if you are a contributing member aged 18 or over) of up to $260.72 for members earning under $180,000p.a.
• As well as saving for retirement, you can also use your KiwiSaver to help buy your first home through a first home withdrawal. Check out our guide to KiwiSaver first home withdrawals.
• If you change jobs or leave the workforce your KiwiSaver account moves with you.
• If you experience significant financial hardship it is possible to access the funds in your account early. But the threshold of proof is high to ensure it’s only used as a last resort, and often after other budgeting or financing options exhausted. Check out our guide to KiwiSaver withdrawals.
• Once you’ve joined, you can make voluntary contributions (lump sums or regular automatic payments) at any time, either directly to your KiwiSaver provider or through Inland Revenue.

There are hundreds of KiwiSaver fund options, offered by almost 30 different schemes. The choice is mind boggling - so how do you cut through the noise and build a KiwiSaver strategy that works for you?

Get these four things right and you’re well on your way:

• Set a goal for your KiwiSaver.
• Choose the right fund for you.
• Choose a provider that suits you.
• Don’t touch it! Leave your KiwiSaver to grow and max out the power of compound interest (this part is harder than it sounds).

Putting money aside and investing is great, but what really matters is how you use that money to improve your life - or the lives of the people you care about. To figure that out you need to set goals. These goals should be specific, achievable, and quantifiable. They should act as a sort of financial north star - every investment decision you make should take you a step closer to achieving them.

Because of KiwiSaver’s rules, these goals usually have something to do with retirement or buying your first home.

Read more about setting financial goals

1. The right amount of risk

Risk is a scary word, especially when it’s in the same sentence as ‘life savings’. But when choosing a KiwiSaver fund, risk, and more specifically volatility, is something we need to accept and even embrace - hear us out.

Most people want big returns, but the problem is, returns usually come hand-in-hand with volatility. In other words, they can go up and down in value frequently and sometimes by large amounts.

The secret to success isn’t to avoid volatility completely, it’s choosing your comfort level with risk - but how can you figure out what’s right for you?

The time you’ve got left until you withdraw your investment is called an investment horizon. If you’ve got a long investment horizon, say 7 years or more, you’ll have time to ride out the ups and downs of a more volatile investment, and ultimately benefit from the long term upward trend. If you don’t have long, perhaps you’ll need the money in the next 1-3 years, you might consider something less volatile.

For example, if you’ve got 10, 20, 30 years until you retire it may be a good idea to consider a fund with higher volatility. This fund could drop in value next year, but you’ll have time to ride out that dip, and eventually enjoy higher long-term returns. The benefit of higher returns ultimately outweighs the risk posed by volatility.

On the other end of the scale, let’s say you’re planning to buy your first home using your KiwiSaver in a year. If you were to buy highly volatile investments, a market downturn could have a significant impact on your balance, and put a spanner in your house buying plans.ou might even have to delay buying a house or buy something cheaper…uch. With more conservative, less volatile investments you might not earn as big of a return, but you’ll be less likely to lose money through fluctuations over this shorter timeframeThe broader risk is permanent loss, not just cyclical changes in valuation, caused by default or company liquidation. This risk is mitigated through diversification across investments, sectors and countries which almost all KiwiSaver funds have, rather than all in one company, asset or theme.

Read more about investment horizons

Maximising your returns is important, but so are your values - and thankfully there’s no reason why you can’t earn a good return while sticking to your guns.

Environmental, social and governance (ESG) investments allow you to place your money with companies that are aligned to your values and make a positive difference.. These investments might exclude companies involved with weapons production, gambling, or polluting industries - or favour those who are doing good.

You can also invest in thematic funds that align with your interests like commercial property funds, or clean energy funds.

Read more about ESG investing

Past performance of an investment is no guarantee of future performance. You should never pick an investment purely because it’s just had a period of high returns. Instead focus on the stuff that you can control like fees, and the strategy of the fund. That said, it’s still worth looking at the returns generated over the last 3-5 years by the KiwiSaver funds you’re considering. If a fund is consistently lagging behind other similar funds over the long term, you might consider avoiding it.

The best way to compare is using the Sorted Smart Investor tool (you can look at fees using this tool too).

Listen to our podcast below on choosing the right KiwiSaver for you.

It’s a good idea to look at the providers, as well as the individual funds you might be considering. Here’s what you’ll need to think about:

Every KiwiSaver member pays fees to a provider, which vary from 0.25% to 2% of your total KiwiSaver fund value.

When it comes to fees, what really matters is value, or in other words, what you get for your money. And the thing is, there is little to no evidence that higher fees create higher returns, with much more evidence of the inverse. That’s why Kernel are strong advocates for low-fee investments. We know that a fee of 0.25% versus 1.25% could mean thousands more dollars in your KiwiSaver balance.

Read more about comparing investment fees

Other considerations:

• Does the provider offer helpful advice and information, directly or through their website?
• Do you understand the information you’re receiving? If not, consider moving to a provider that can explain things in a way that makes sense.
• Do you understand the manager’s investing approach? Does it make sense and give you a good idea of where your money is invested and why?
• If it’s important to you, are ethical/socially responsible investment options available through the provider? Or does the provider take an ethical approach in their investment choices? Are their “ethics” the same as yours and can they explain them?
• Can you make additional lump sum or regular contributions to your fund and, if so, is there a minimum amount?
• Does your provider offer other features, such as a fund in which risk is adjusted with age, or a fund that invests widely around the world?
• Some providers use separate external companies to manage their investment funds. Do you know of the organisation(s) named as managers and/or investment managers and have confidence in them?

You can switch to another fund offered by the same provider, for example, from a Growth or Balanced fund to a Conservative fund. Often this is easily done online either through your provider’s portal or by sending your provider an email.

You can also transfer to another provider by signing up with them directly. Your new provider will take care of the transfer process for you and inform you when it’s done. It takes approximately 2 weeks for that to occur. There is no need to get in touch with your old provider.

Read more about switching KiwiSaver providers

Once you’ve set goals, reviewed what fund is right for you, found a provider that suits your needs, and put this into action, then the next part is easy – don’t touch it! This is the key to making your KiwiSaver a success.

As your balance grows, it can become tempting to fiddle with your account. When global stock markets crashed in March 2020 due to the initial fears about COVID-19, in hindsight far too many KiwiSaver investors, who likely have decades before they will access their balance, switch out of Growth funds and into Cash. This panic response will have damaged the long-term returns of these investors, as the market recovered and they remained sitting in cash.

While it is tempting to try and time the market, don’t! Let your KiwiSaver do its thing, and check it once a year – if that. The only time you need to change is if your personal circumstances are changing such as, retirement is nearing or you’re buying a home soon.

Read more about the power of compound interest

Earlier we mentioned the yearly government contribution of $260.72. As is normally always the case, there is no “free lunch”. However, this is as close as you will get to free, and is one of the best returns you can make. It’s important to note that if you earn more than $180,000 in taxable income a year, you don’t qualify for the government contribution.

So how do you claim your free money?

To get the government contribution all you have to do is be a member and contribute at least $1,042.86 of your own money between 1 July to 30 June each financial year. It’s that simple!

Everybody in KiwiSaver should try to take advantage of this. If you get to June and you haven’t reached the $1,043 contribution threshold, then you can make a one-off payment to the IRD or KiwiSaver provider to ensure you claim the full amount. You simply need to have had a KiwiSaver account (You can still switch providers) for the whole year, otherwise you get prorated especially if joining for the first time.

Read more about KiwiSaver contributions

KiwiSaver has been designed to help fund your retirement and to help you get into your first home, which is why you commonly hear you can’t withdraw your funds until you turn 65 However in certain circumstances you might be able to get your money out earlier, such as if you’re buying your first home, leaving the country for good, or if you’re in financial hardship.

Here’s the IRD advice on withdrawal due to financial hardship

Read our guide to KiwiSaver withdrawals

• Match your investment horizon with the volatility and potential returns of your investments. If you’ve got 7+ years until you need to withdraw, consider choosing Growth or High Growth investments. If you’ve only got a year or two, you might stick with more Conservative fund options..
• Once you are in the right fund category, don’t switch unless your personal circumstances are changing.
• Contribute at least $1,042.86 before 30 June each year to get your $260.72 government contribution.
• Choose a fund based on things you can control, like fees and the service offered by the provider - not past performance.
• Don’t try to time the market - selling when the market is performing poorly is the best way to lock in your losses. Instead stay calm, and wait for your balance to recover.
• Resist the temptation to watch your KiwiSaver balance every month, and instead review on a yearly basis or when your circumstances change.
• Know that if you find your KiwiSaver is not in the right place, switching takes less than five minutes.

When you’re choosing a KiwiSaver fund, add the Kernel KiwiSaver Plan to your list of funds to consider.

There’s something for every saver and every financial goal including options such as the Kernel Cash Plus (great for short-term goals) Kernel Balanced (medium term) and Kernel High Growth funds (long term). Fees are some of the lowest in the market at just 0.25%, meaning you get to keep more of your returns.

If you want to build your own portfolio, you can choose to customise - this enables you to design your own KiwiSaver plan from a mix of 25+ funds, including options like Global ESG, World ex-US, and NZ 20 funds.

Switch to the Kernel KiwiSaver plan

Kernel Wealth Limited is the manager and issuer of the Kernel KiwiSaver Plan and Kernel Funds Scheme. A Product Disclosure Statement is available at Kernel Wealth | Resources & Documents. Investing involves risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time. The information provided should not be relied upon as investment advice or recommendations and should not be considered specific legal, investment or tax advice.