If you want to maximise your KiwiSaver, you can’t just set it and forget it. You need to take an active role in your fund and your contributions. Thanks to providers’ apps and websites, it’s easy to keep tabs on your savings. So follow our six easy steps, and max out your KiwiSaver investments.
1. Increase your KiwiSaver contributions
The most obvious way to grow your KiwiSaver account balance is to put more money into the fund. Most employed KiwiSaver members contribute at the minimum contribution rate of 3% of before-tax salary. But you can contribute: 3%, 4%, 6%, 8% or 10% of your before tax pay. If you haven’t chosen a contribution rate, by default, you’ll get signed up to the minimum level of 3%.
By increasing your contribution rate, you can add thousands to your KiwiSaver account balance. Looking at a salary of $75,000, for example, 3% of the salary is $2250, but this amount more than doubles, to $6000, when you base it on 8%. Plus you’ll be paying less income tax!
The good news is that you can increase your contribution rate after signing up. The KiwiSaver scheme allows members to change their contribution rate every three months, unless your employer has agreed to a shorter time frame.
If you want to change the percentage you contribute, you’ll need to notify your employer in writing. There is also the option to complete a KiwiSaver deduction form (KS2), to give to your employer.
2. Make voluntary contributions to your KiwiSaver account
Another way to maximise your KiwiSaver is to deposit extra funds into it. For example, a work bonus or lottery win. You can do this at any time, even if you’re not in paid employment.
You can make voluntary payments directly to your scheme provider, or via the IRD through the pay-tax function offered by most New Zealand banks. To do this through IRD, log onto your online banking, pick the Pay Tax option, enter your IRD number, and choose the KiwiSaver tax type, which has the code KSS.
The key point to remember when making KiwiSaver top-ups is, once you’ve transferred your money to the fund, it’s locked in. You won’t be able to touch the money until you withdraw it for retirement or a first-home deposit.
Some people prefer to put money in other investments, rather than topping up their KiwiSaver account balance. There are some benefits to this, such as having more investment choices available, and not having your money locked away in an account that’s untouchable until you reach 65 (or to use for a first home purchase).
On the other hand, keeping savings out of reach, in a KiwiSaver fund, can work extremely well for those who are tempted to spend too much.
3. Escape the default fund
If you don’t choose your own scheme provider, and your employer doesn’t have a preferred scheme provider, Inland Revenue will choose one for you from government-appointed default providers. Currently default schemes are conservative. However from June 2021, new default KiwiSaver accounts will be place into balanced funds.
A conservative fund is designed to reduce the potential for frequent and large drops in balance. Conservative funds hold 10% to 34.9% in growth assets, and are generally suitable for those looking to access their KiwiSaver funds within the next two to six years.
Generally speaking, default funds are not the most suitable choice for members in their 20s, 30s, 40s, or possibly even for investors in their 50s. This is because members over ten years away from accessing their funds have the time to ride out the fluctuations associated with higher-risk growth funds.
According to the latest KiwiSaver Annual Report, there are 381,034 KiwiSaver members in default schemes who have not made an active choice to remaiun there. That’s 12.6% of all KiwiSaver members whose money could be working harder for them if they took the time and effort to research which KiwiSaver fund is right for them.
Currently, there are nine government-appointed default providers: AMP, ANZ, ASB, Booster, BNZ, Fisher Funds, Kiwi Wealth, Mercer, and Westpac. Although they are set for change when their terms expire next June.
You can read more about the implications of default schemes moving from conservative to balanced in our story: What the Changes to the Default KiwiSaver Setting Mean for New Members and First Home Buyers.
4. Minimise your KiwiSaver account fees
Every dollar counts when it comes to KiwiSaver. So, minimising fees is important to help you get the best KiwiSaver returns possible. Look for fee waivers. A fund that waives KiwiSaver fees for children under the age of 18, if an annual deposit is made, could lead to savings.
It’s also worth weighing up how much you’re being charged in fees. Some funds charge more than others – especially the ones that charge performance fees based on how much growth they achieve each year on your KiwiSaver account balance.
Of course, the amount of KiwiSaver fees needs to be balanced against the growth the fund achieves. As you’ll see from Canstar’s latest research statistics, below, funds with the most expensive fees can have the highest returns.
But this isn’t always the case, so don’t take higher fees as a given that you’ll get a greater return. Check out Canstar’s KiwiSaver comparison tables for more in-depth information on funds’ fees and returns. For more info click on the button below.
KiwiSaver Fees By Fund Type
Source: Canstar, KiwiSaver Outstanding Value Schemes 2020. Based on fees attached to products assessed for the KiwiSaver star ratings.
KiwiSaver 5-Year Returns By Fund Type
Source: Canstar research. Figures represent the min, max and average returns (net of fees only, not tax) of the different profiles with an average balance of $20,000, as of June 30th 2020.
5. Make sure you get the full member tax credit
If you’re contributing to your KiwiSaver scheme and are between 18 and 64 years old (or older if you have been a member of KiwiSaver for less than five years), then you’re entitled to a member tax credit from the government. The maximum annual member tax credit you are entitled to is $521.43 per year. To get the full member tax credit automatically, you have to contribute at least $1,042.86 a year, from 1 July to 30 June.
Employer contributions, government contributions and amounts transferred from Australia under the trans-Tasman retirement savings portability do not count towards the minimum contribution requirement.
If you join KiwiSaver part way through the annual period (1 July to 30 June), you’ll receive a member tax credit based on the number of days in the year that you’ve been a KiwiSaver member. When you turn 18, you’ll receive a member tax credit for the number of days in the year (1 July to 30 June) that you are 18.
Member tax credits are paid out annually around July/August.
To be eligible you also need to reside mainly in New Zealand, except if:
- You are a government employee who is serving outside New Zealand.
- You are working overseas as a volunteer, or for token payment, for a charitable organisation named in the Student Loan regulations.
- The work meets one or more of the requirements set out in the Student Loan Schemes Act 1992.
Member tax credits stop when the member hits the age of eligibility for superannuation (65) or has been in the KiwiSaver scheme for five years, whichever comes first.
6. Take interest in your KiwiSaver statement
To increase your chances of boosting your KiwiSaver balance, it pays to take an active interest and keep track of your investment. You can do this by reading all your member statements – many KiwiSaver members admit they don’t do this – as well as any newsletters, to get a better understanding of how money is being invested on your behalf.
For the first time this year, KiwiSaver annual statements included a projection of how much money members may have when they turn 65. Although the figure is rough assumption, it’s still a good guide at your projected retirement lump sum and what that means in weekly payments if you live until 90.
Canstar provides some great tips on what to look out for on your KiwiSaver statement. We also have an article that breaks down the basics of KiwiSaver for young people. The more informed you are as an investor, the better the decisions you’ll be able to make, which should help you build more funds towards retirement or that all-important first-home deposit.
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