How to use your KiwiSaver for better returns

Being in the right KiwiSaver scheme with the correct Prescribed Investor Rate (PIR) can make a big difference to your funds over time. Here, Canstar shares the things you need to know in order to use your KiwiSaver membership to its full potential.

Designed to help New Zealanders with their long-term savings for retirement, KiwiSaver is an often-ill-understood initiative which many Kiwis use passively without every really understanding how it all works.

After ‘opting-in’ to the KiwiSaver process, and choosing the rate at which contributions are deducted from your pay (3, 4, 6, 8 or 10%), contributions are paid to your chosen KiwiSaver scheme provider, which invests them in a fund of your choice.

These funds vary in risk, with the level of risk often associated with the level of return on investment (more on that later).

Choosing the right fund

Many think that choosing a KiwiSaver scheme provider is the most important decision, but really it’s all about choosing the right fund that will help you to generate more money from your savings over time.

While different KiwiSaver providers may offer a range of investment funds, it’s important to consider two things when choosing the right fund for your needs; the risk versus return ratio, and the fees it charges.

Risk versus return

The most popular fund types are usually broken down as follows, with the ‘riskier’ funds generally investing larger proportions in growth assets (investments such as shares or property which have the potential to deliver higher returns over a longer period of time)

Fund Type Risk Profile
Defensive Low risk
Conservative Low-to-medium risk
Balanced Medium risk
Growth Medium-to-high risk
Aggressive High risk

 

When choosing a fund three useful things to consider include; your risk profile (how risk adverse you may be); your investment timeframe (using KiwiSaver to buy your first home versus retirement); and your life stage.

Fees

KiwiSaver fees come in two forms; a fixed membership fee (the average at March 2019 was $32); and a percentage fee which is dictated by your KiwiSaver account balance.

Compare KiwiSaver providers with Canstar

Choosing a KiwiSaver scheme and provider

Tools such as Canstar’s KiwiSaver Fund Comparison are an excellent way to see which KiwiSaver scheme provider suits your needs based on your fund preference. If you have used a comparison tool, you’ll likely have received a suggestion with one of these providers listed at the top.

Unsure which KiwiSaver scheme is right for you? Use Canstar's comparison tool to find out

Already in KiwiSaver but unsure which company manages your money? Then perhaps you have been provisionally allocated to your employers chosen scheme, or, you may have been placed into a ‘default fund’ with one of the nine Government-approved KiwiSaver scheme providers. These providers are:

  • AMP Services (NZ) Limited
  • ANZ New Zealand Investments Limited
  • ASB Group Investments Limited
  • Booster Investment Management Limited
  • BNZ Investment Services Limited
  • Fisher Funds Management Limited
  • Kiwi Wealth Limited
  • Mercer (NZ) Limited or;
  • Westpac New Zealand Limited.

Typically, classified as ‘low-risk’, default provider schemes are a temporary measure that invests the member’s money one of the above providers’ conservative fund options.

In its 2018 KiwiSaver Annual Report, the Financial Markets Authority (FMA) found that of New Zealand’s 2.3 million KiwiSaver members, 18% were still invested in default funds – meaning that too many are missing out on potential investment returns.

How to switch your KiwiSaver scheme provider

If you find yourself in a default fund, or want to make a more calculated decision when it comes to your KiwiSaver, you can use Canstar’s KiwiSaver Fund Comparison tool below.

Compare KiwiSaver providers with Canstar

Once you’ve found a solution better suited to your needs, making the switch can take a matter of minutes online through a simple application.

Prescribed Investor Rates (PIR)

One of the lesser known, but no less important components of KiwiSaver is the member’s PIR, which is essentially the rate at which KiwiSaver contributions are taxed by the Government.

PIRs are split into three price brackets, depending yearly income over the past two financial years.

The confusion comes when members are under the impression that their PIR is only based on one year’s annual income – and thus, end up paying more tax than required.

In April 2019, the Inland Revenue introduced an automated tax assessment system to help the 450,000 Kiwis that had previously paid the incorrect PIR on managed funds such as KiwiSaver.

Check to see that you’re on the right PIR below:

  • 28% If your taxable income in either of the previous two years was more than $48,000
  • 17.5% If your taxable income in either of the previous two years was $48,000 or less
  • 10.5% If your taxable income in either of the previous two years was $14,000 or less

Ensuring that you’re on the correct PIR is extremely important, because let’s face it – no one wants to pay more tax than they have to.

If you find that you are on the wrong rate, simply request to change with your KiwiSaver scheme provider, or you may be able to make the switch yourself through your providers online platforms.

Understanding your investments is the first step to ensuring that they are working to maximum potential for you, and from Canstar we recommend keeping up with the play to ensure your chosen KiwiSaver scheme provider and fund is fit for purpose.

Find the right KiwiSaver scheme that suits you with Canstar's free comparison tool

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