KiwiSaver 101

Almost three million Kiwis are signed up to a KiwiSaver scheme. The majority, however, remain in their initial default funds, and wish they could invest more than they do. The most common reason for not doing so is cited as ‘‘just too complicated to worry about’’. Here’s a KiwiSaver 101 guide.

What is KiwiSaver ?

KiwiSaver is a voluntary savings scheme set up by the Government in 2007 to help New Zealanders save for retirement.

It is not mandatory and employees can choose to contribute from 3% to 10% of their gross (before tax) wage or salary to their KiwSaver account.

Employers also need to contribute at least 3% of the employee’s gross salary — unless the employer offers an existing superannuation scheme — if the employee is under 18 or the employee is over the age of eligibility — 65.

Because it is an optional investment, people can opt out within two to eight weeks of starting a job. Once you join, however, you have to contribute for at least 12 months, after which time you can take a break if you wish.

KiwSaver also allows you to make voluntary contributions or lump sum payments at any time, either directly to your KiwSaver provider or through Inland Revenue.

You can’t touch your money until the age you get New Zealand Superannuation which is 65, although if you are over 65 you can continue to invest in KiwiSaver.

Government contributions

For every dollar KiwiSaver members put in, the New Zealand Government kicks in an additional 50c up to $521 a year.

According to Sorted.org.nz, an 18year old in KiwiSaver who contributes a minimum of $1043 (equivalent to a salary or wage of $34,762 and 3% contribution) would have an additional $36,000 for their retirement by the time they reach 65.

No surprise then that financial advisers suggest that savers top up if necessary, to ensure they get the full boost. Government contributions are deposited into KiwiSaver accounts in late July or early August every year.

Understanding fees

Generally, there are two types of fees at play and they are charged by the 30 KiwiSaver scheme providers. These are account fees, which are flat, fixed fees that can vary from nothing to $60 per year and percentage fees, based on the value of your balance charged by the provider to cover things such as investment management, client service and financial advice.

For example, Simplicity KiwiSaver charges an annual fee of 0.31% of the total investment, plus a $30 membership fee. Provider SuperLife charges the same annual fee with an average fee of between 0.5% and 0.7% of the average size of the investment.

By contrast, the ANZ KiwiSaver scheme, New Zealand’s largest scheme with about $12 billion under management, charges from 0.42% to 1.11% of the account balance and a $2 per month membership. So it pays to shop around, advisers say.

How the tax works

Investment earnings from KiwiSaver schemes are taxed as are contributions from employers. The Government contribution does not count as taxable income and withdrawals are also taxfree.

Tax is deducted by the provider and is paid to the IRD and the amount members pay depends on whether the scheme they are in is classed as a widely held superannuation fund or a portfolio investment entity (PIE).

All the default schemes are PIEs and the tax rate is based on the prescribed investor rate the investor chooses, based on total taxable income over the past two years.

Polson Higgs financial adviser Lisa Parata says the key thing is to make sure you are on the right rate. ‘‘Someone with a $100,000 balance in their fund could be losing around $420 per year just by being on the default, maximum rate of 28% — so we advise people to pay attention and ensure they get it right early on, but also that your rate is updated as your earnings change.’’

When can I get my money?

As a rule of thumb, KiwiSaver members are eligible to withdraw all their savings as a lump sum when they qualify for NZ Super. According to the IRD, in some circumstances you can withdraw some or all before 65, to help buy a property (assuming you have been a member for at least three years), are not a firsthome buyer but are in the same financial position as a firsthome buyer, are moving permantly to a country other than Australia, or are enduring significant financial hardship, although in the last instance government contributions will not be accessible.

— Additional information: IRD,

moneyhub.co.nz and sorted.org.nz