Are you in Kiwisaver?

(1) If you answered "Yes", then skip to section 2. If you answered "No", why not?


If you're an employee and you contribute 3% towards kiwisaver, then your employer will match that (unless they make you take a salary sacrifice) and the government will chip in with another $520 per year. So, if you earn $80,000, then that's $2,920 extra per year or a guaranteed return of 122% on your contributions excluding any investment gains. So, unless you can get a better return on a low risk investment elsewhere (and you can't!) then it's a great idea.


If you're self employed and don't pay yourself a PAYE salary, then you can choose to contribute directly to a kiwisaver scheme provider. If you contributed $100 a month, then the government will chip in with $520 per year. So, that's $520 extra per year or a guaranteed return of 43% on your contributions excluding any investment gains. Once again, it's a great return on a low risk investment so it's a great idea.


The only downside with kiwisaver is that you generally can't touch your kiwisaver money until you reach 65 years of age. One exemption to that is withdrawing your money early to be used towards a deposit on your first home.

(2) Most kiwisaver fund providers offer 4 funds, conservative (this is the default fund), moderate, balanced and growth. Which type of fund are you in?


The Morningstar Kiwisaver Report to December 2015 showed the following average returns over last 5 years:

  • Conservative 6.1%
  • Moderate 7.1%
  • Balanced 8.4%
  • Growth 9.6%

 

Around 50% of kiwisaver funds are held in conservative or moderate funds. I think those people are really missing out as they could be getting much better returns over the long term. I can understand that you may want to have your kiwisaver funds in a conservative or moderate fund if you don't have long enough until retirement to see out any peaks or troughs in the financial markets, but otherwise you should really consider getting the best return on your kiwisaver funds as possible.


Your first job is to confirm what type of kiwisaver fund you are currently in. You should then have a talk to your kiwisaver provider to determine if that type of fund is best for you or review the attached Morningstar Kiwisaver Report to see if you think another kiwisaver funds provider might work better for you.

 

Disclaimer: The above article is general in nature and we recommend you seek professional advice tailored to your specific personal situation.