The pros and cons of increasing your KiwiSaver contributions

In March, a new law came into effect, introducing 6% and 10% KiwiSaver contribution rates in addition to the existing 3%, 4% and 8% options. The changes came as a result of recommendations by the Retirement Commissioner’s 2016 Review of Retirement Income Policy to increase options and to give more control to KiwiSavers members.

Many New Zealanders saw the large gap between 4% and 8% contributions and settled for the lower rate because 8% was too high, acting retirement commissioner Peter Cordtz said at the time of the KiwiSaver law change. The Government believed that a significant number of New Zealanders would choose an in-between rate if it was viable. A 10% contribution option was also added to give more autonomy to New Zealanders who wanted to give their savings an extra boost. 

KiwiSaver contributions over time 

KiwiSaver contribution rates might seem insignificant in the first instance, but stacked up over time they can make a huge difference to your retirement fund.

Canstar’s tables below show projections for a 35-year old with a yearly salary of $65,000 and an initial KiwiSaver balance of $20,000. 

Growth fund with a 7.7% return

Contribution rate Balance at 65-years old with a 7.77% return
from Growth funds
3% $201,994
6% $284,271
8% $339,122
10% $393,974

Conservative fund with a 5.28% return 

Contribution rate Balance at 65-years old with a 5.28% return
from Conservative funds
3% $145,035
6% $207,258
8% $248,741
10% $290,223

*These calculations are indicative and intended to be used to demonstrate an estimated KiwiSaver balance based on average figures as at September 2019. 
*Returns quoted are the fund average in 2019 according to Canstar’s research which is based on normal distribution data. Final amounts are in today’s dollars and assume a 3% monthly employer contribution, tax rate of 28% and yearly Government contributions of $521.43.

Paying off debt versus increasing KiwiSaver contributions 

If you find yourself in debt and wonder whether you should prioritise increasing KiwiSaver contributions or clearing personal debt, then it is important that you take a look at the interest you’re charged on the debt, as well as the returns on your KiwiSaver funds.

If the interest charged on debt is significantly higher than your KiwiSaver returns, it could pay to focus on clearing the revolving debt. 

Consider your lifestyle 

Before you pick a KiwiSaver contribution rate, it helps to consider your lifestyle factors. Think about what you can afford, while taking into account your spending plans. 

For example, those employed in shift work may benefit from choosing a lower contribution rate, in order to negate risks associated with a sporadic roster, while those in full-time employment may be better positioned to make higher contributions. 

Seek financial advice 

It’s important to remember that when it comes to personal finance, everyone has individual needs and obligations. 

Because there is no one size fits approach to KiwiSaver , you could benefit from discussing your personal financial sitiation with a registered financial advisor, who will be well-placed to offer tailored investment advice regarding the performance of your funds. 

Canstar offers free comparison tools to help you to better understand the features and options available to you across the market. 

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