What is KiwiSaver?
KiwiSaver was set-up by the government back in 2007 to help kiwi’s save for their retirement.
If you are employed you can choose to join the scheme and contribute 3%, 4% or 8% of your before-tax income. If you are self-employed or out of work you can make voluntary contributions. As long as you contribute, after 18 years old, the government helps you grow your fund by contributing 50c for every $1 you save.
Although a government initiative, the funds invested are not managed by the government. They are managed by fund providers and there are many different ones. These can be banks or private investment providers, all regulated with your funds protected under a licensed Supervisor. The government choose 9 default providers.
If you don’t choose who you want your funds to be invested with, you will automatically be placed with one of these 9 default KiwiSaver providers
Your KiwiSaver account is an investment account. You save in your account and your investment providers invest it for you. It’s a long-term game. Generally you can’t touch the savings until your retire so the fund has time to grow.
Each time your investment grows the whole amount is reinvested again and again…compounding your contributions. The longer you can invest the greater the power of compounding!
Case Study Early 20 Year Olds
We have recently been working with some younger clients, looking at their financial future and in particular KiwiSaver. The group were all in their early 20s.
We were discussing what KiwiSaver is and what it meant to them. It was quite amazing that hardly any of them knew what fund they were in and a couple didn’t even know who their KiwiSaver was set-up with.
After a little searching they all managed to find who they were with and what funds they were investing in. From that point on, with the help of an excel spreadsheet, we started discussing what type of funds they think they should be investing in.
Some were still in the default cautious funds and one was in a balanced fund. We discovered that none of them actually had a real idea of what was happening to the funds or what they were likely to return for them.
Playing with other fund choices we looked at what was possible in terms of return and final retirement funds. After discussing their attitude to risk verses returns, most of the group decided to move to growth and high growth funds.
The difference in potential returns were staggering. One of the younger members of the group, simply by moving investment fund, could enjoy a difference of over $1million dollars.
The group left with a clearer understanding of what KiwisSaver is likely to return for them individually. They also all agreed to review it on an annual basis to really help them see how their ‘investments’ were doing and if any changes would benefit them.
Don’t leave your KiwiSaver to chance. You don’t have to sit in a default fund. The choice is yours. Sit with a financial advisor and you’ll quickly see how your fund is fairing and the potential retirement pot you can look forward if your contributions are invested wisely.
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