KiwiSaver 101: Everything New Zealanders Need to Know
Have you ever wondered how KiwiSaver works? Or maybe you’re wondering if you’re even in the right fund? This guide contains everything a Kiwi needs to know about KiwiSaver
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What Is KiwiSaver?
KiwiSaver is a voluntary savings scheme designed to help New Zealanders save for retirement, with the added ability to use it towards their first home. It was introduced by the government in 2007, and most people who are employed in New Zealand are automatically enrolled when they start a new job (with the option to opt out if you choose)
Your KiwiSaver money is invested in a fund on your behalf, which means it grows over time, not just from your own contributions, but from investment returns as well. The rate of return you get depends on your type of fund and it can have a huge effect on your overall savings.
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Who contributes to your KiwiSaver?
There are typically three sources of money automatically going into your KiwiSaver account:
- You - a percentage of your before tax pay (default 3.5%, with options to contribute more)
- Your employer - a compulsory matching contribution (minimum 3.5% of your before tax pay, if you're contributing yourself)
- The government - an annual contribution, which tops up your savings if you're eligible and you've contributed enough of your own money during the year
This combination is a big part of why KiwiSaver is such an effective savings tool as you're getting extra money from your employer and the government on top of what you save yourself
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How much should you contribute?
You can choose to contribute 3.5%, 4%, 6%, 8%, or 10% of your before tax pay. If you don't choose a rate, you'll default to 3.5%.
If you are keen to contribute more to your KiwiSaver, even just a percentage point or two extra, can make a massive difference over the course of your life, thanks to compounding investment returns. If you're self-employed or not currently working, you can still contribute to KiwiSaver directly, though employer contributions won't apply.
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Government contributions: are you eligible?
Not everyone qualifies for the government's annual KiwiSaver contribution. To be eligible, you generally need to:
- Be aged between 16 and 65
- Have an annual taxable income of $180,000 or less
- You must have contributed $1,042.86 of your own money between 1 July to 30 June each year
If you meet the criteria, the maximum annual government contribution you can receive is currently $260.72, though the exact amount depends on how much you've personally contributed during the year, so it's worth checking you're contributing at least $1,042.86 to get the full amount.
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What about employer contributions?
If you're contributing to KiwiSaver through your job, your employer is required to contribute a minimum of 3.5% of your before tax pay on top of what you put in yourself. It's worth knowing that employers must pay tax on their contribution (this is called Employer Superannuation Contribution Tax), so the amount that actually ends up in your account may come in slightly under the full 3.5%
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Choosing the right fund type
KiwiSaver providers typically offer several fund types, ranging from conservative to aggressive growth.
- Conservative/Defensive: This is lower risk with lower expected returns. Your fund is mostly made up of cash and fixed interest
- Balanced: A mix of growth assets (like shares and property) and defensive assets.
- Growth/Aggressive: This is higher risk for higher expected long term returns. Your fund is made up of mostly shares and growth assets. This is the fund that can have the most fluctuations depending on what the market is doing.
Generally speaking, the more time you have until you'll need the money (whether that's retirement or a first home purchase), the more comfortable you can typically be with a higher growth/agressive fund, since there's more time to ride out short term market ups and downs.
It’s also possible to split your fund into two separate risk levels. For example 70% in aggressive growth and 30% in balanced. For those in their 20’s, 30’s and 40’s who are saving for retirement, we generally recommend a decent percentage of your fund to be in higher growth funds, depending on your comfortable level of risk. When we work with KiwiSaver clients, we use your risk tolerance and goals to help build the perfect split of funds that will return the most rewards, inline with your individual situation.
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Using KiwiSaver to buy your first home
One of the most well known features of KiwiSaver is the ability to withdraw most of your balance to help buy your first home. To be eligible, you generally need to have:
- Contributed to KiwiSaver for at least three years
- Never owned a property before (with some exceptions for previous owners in certain circumstances)
- Intend to live in the home you're purchasing
You can typically withdraw your contributions, your employer's contributions, and investment returns, but you will need to leave a minimum balance ($1,000) in your account.
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KiwiSaver and retirement
While the first home withdrawal option gets a lot of attention, KiwiSaver's primary purpose is retirement savings, and this is generally what we recommend most people to use their funds for, unless you absolutely need them for a first home. Funds are generally locked in until you reach the qualifying age (currently 65), at which point you can withdraw as much or as little as you like.
Because KiwiSaver combines your own contributions with employer and government contributions over potentially decades of work, it can become a significant part of your overall retirement income, alongside NZ Super and any other personal savings or investments.
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What if you're self-employed or not currently working?
You're not locked out of KiwiSaver if you don't have a traditional employer. Self-employed New Zealanders can contribute directly to their KiwiSaver account and can still be eligible for the annual government contribution (up to $260.72), provided they meet the age and income criteria and contribute enough during the year. This is worth taking advantage of, even if your income fluctuates seasonally, which is common for many small business owners and contractors around Queenstown and the wider Otago region.
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Living overseas? KiwiSaver still matters
If you move overseas, your KiwiSaver savings don't disappear, but access rules vary depending on your circumstances and destination. It's worth getting advice before making any decisions about your KiwiSaver if you're planning a move overseas
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Getting the most out of KiwiSaver
A few habits can make a real difference over time:
- Check your fund type matches your timeframe and risk comfort. Never just "set and forget" your KiwiSaver without reviewing it every few years
- Contribute enough to get the full government contribution each year if you're eligible - it's essentially free money!
- Consider contributing above the 3.5% default if your budget allows, especially earlier in your career when compounding has more time to work
- Review your provider's fees periodically, as these can vary and impact your long term returns
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Not sure where you stand with KiwiSaver?
Whether you're weighing up a first home withdrawal, wondering if you're in the right fund, or just want a clearer picture of how KiwiSaver fits into your bigger financial plan, it helps to talk it through with someone who knows the full picture.
If you want to better understand your KiwiSaver options, see how your fund is tracking for retirement, or are keen to know how much of your KiwiSaver to use for a first home, then the team at Loan Market Queenstown can help. Get in touch with us for a free, no obligation conversation.
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Frequently Asked Questions
Is KiwiSaver compulsory in New Zealand?
No, KiwiSaver is voluntary, though most new employees are automatically enrolled and can choose to opt out within a set period.
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Can I withdraw my KiwiSaver early?
Generally, KiwiSaver funds are locked in until age 65, with two main exceptions: a first home withdrawal (if eligible) and significant financial hardship.
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How much does my employer have to contribute to KiwiSaver?
Employers are required to contribute a minimum of 3.5% of your before tax pay, provided you're contributing yourself and meet eligibility requirements. Employers pay tax on their contribution, so you may receive slightly less than the full 3.5% in your account.
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Who qualifies for the government KiwiSaver contribution?
You generally need to be aged 16 to 65, have an annual taxable income of $180,000 or less, and be contributing to your KiwiSaver account. Eligible members can receive up to $260.72 per year, depending on how much they've contributed themselves. This government amount is pro-rated based on personal contributions.
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Can I have more than one KiwiSaver fund?
No, you can only be with one KiwiSaver provider and fund at a time, though you can switch providers or fund types whenever you like.
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