Is your KiwiSaver working for you? Are you putting in the best possible contributions for your future self? If not, then perhaps this blog can help.
Here, we'll cover how KiwiSaver works, why it matters and how you can change your KiwiSaver contribution amount at (almost) any time.
You could think of your KiwiSaver as a long-term investment savings account that exists to help you save for a first home or retirement. But, unlike a standard savings account, your KiwiSaver gets invested into different funds. Depending on the fund you choose, your KiwiSaver could grow by a small amount each week or a lot in a short time. That's why the earlier you get started, the better off you'll be once you're able to access your KiwiSaver.
How do I contribute to it?
If you start a job with PAYE (pay as you earn), you'll be able to choose a percentage of your gross (pre-tax) salary to be contributed to your KiwiSaver. You can select between:
If you don't tell your employer the rate you want they'll deduct your contributions at the default 3%.
The good news is that all of this will be done for you. Your employer will make the deductions at your chosen rate and pay the IRD directly. The IRD will then transfer these funds to your KiwiSaver provider, meaning that all you have to do is keep earning to contribute.
Every year, the Government will contribute 50 cents for each dollar you put in your KiwiSaver (up to a maximum of $521.43). The money gets paid into your KiwiSaver around the middle of the year, generally between July and August.
So, to get that maximum, you've got to contribute $1,042.86 a year. This may sound like a lot, but it averages around $20 a week — or about $2.85 a day.
So to continue receiving the government contribution, you'll need to keep adding to your KiwiSaver. The money in your KiwiSaver multiplies over time, which means a couple hundred now could turn into thousands by the time you're 65.
If you're contributing part of your pay to KiwiSaver, your employer needs to pay in as well. By law, they've got to contribute a minimum of 3% but might agree to add in more than that. It may pay to discuss KiwiSaver with your boss to see if they'd be willing to push their contribution rate.
Can I put in more money in my KiwiSaver myself?
There are two ways of doing this.
The first is upping your current contribution rate.
Increasing your contribution is an excellent idea if you find yourself with a bit of money to spare. For instance, you might have just landed a new job, a pay rise, or freed up more of your income by paying off your student loan.
All you need to do to change your KiwiSaver contribution is tell your employer. Get in touch with payroll, HR, or your boss — they'll usually want you to send in an email — and say that you'd like to increase your KiwiSaver rate to 4, 6, 8 or 10%, depending on what you choose.
Alternatively, flick them a completed KiwiSaver Deduction Form, which you can find on the IRD's website.
Just one thing to keep in mind — you can't change your contribution rate more than once every three months unless you and your employer agree otherwise.
We also recommend asking your employer to let you know once the changes are done, so you can be sure you're sorted.
Option two - make a direct contribution. You can either add money to your KiwiSaver as a once-off or set up a regular debit deposit. Recurring deposits are also a good idea if you're self-employed and don't have an employer who'll be making regular payments for you.
Anything else I should know?
Your KiwiSaver is more than a great way to put aside a little each month. Because your money gets invested, instead of just sitting in your account, KiwiSaver helps you grow your savings.
You can also withdraw your money if you run into significant monetary hardship. Think of your KiwiSaver as a safety net if things go wrong. Because of employer and government contributions, playing your KiwiSaver right means that you could find yourself with hundreds, if not thousands, in bonus additions to your balance every year.
You can change your KiwiSaver contribution at (almost) any time — every three months, after which you can switch from 3% to 4, 6, 8 or even 10%. Make sure to talk with your employer about their contribution to see if they would contribute more.
The other thing to note is that KiwiSaver is an investment fund that changes depending on your provider (whether your bank or another lender). We have other blogs on switching out your KiwiSaver or changing the interest rate on your contribution if you want to find out more.