How to Get Your KiwiSaver Dialled In
By Simon O’Neill
There are three keys for dialling in your KiwiSaver perfectly: the tax rate you have (based on an income scale), the contribution rate you have and the type of fund/s you’re in. Getting these right for you and your current circumstances can make a huge difference.
Firstly, the bigger picture to consider is when you’re going to withdraw your KiwiSaver funds. Is it for the deposit on your first home? Or for when you retire or face financial hardship or perhaps permanently emigrating overseas? This helps to feed into your decisions around the three keys of how your KiwiSaver is set up.
Fund Type: If you, like me when I signed up in 2007, did not have a conversation with an adviser or the KiwiSaver provider itself, it’s very likely that when you signed up, you were put in the Conservative (default) fund. Good thing is, you’re in KiwiSaver and if you’ve been in 3+ years you’ll be eligible to withdraw a chunk of those funds for your first home. What you may find frustrating is, if you’re in the default fund, your KiwiSaver balance will be significantly less than if you were in a Balanced or Growth fund.
So, is there ever a time to have (or switch) your funds to Conservative (low risk)? Yes, this would typically be when you’re approaching the time when you want to withdraw from the provider and use your KiwiSaver funds, for example, towards your first-home deposit.
In 2020, with Covid-19, KiwiSaver funds took a hit. Some rode that out and have found the funds, in many cases, have bounced back. Some, at the time, locked in those losses and never switched back from Conservative and are not currently reaping the benefits. Your provider (or Adviser) will be able to talk you through these details and also assist in making the adjustments for you and advise if you’re on track to get the full Member Tax Credits from the government, more on that next …
Contribution Rate: This is where there is “free money” up for grabs! For every dollar you put into your KiwiSaver account the government puts in 50 cents - capped at $521.43 a year. So, to get the full $521.43, you need to have put in at least $1042.86 each year. If you’re self-employed and don’t get an employer contribution, this works out at putting in $20 a week.
You can still get some of the free money - the government matches 50 cents for every dollar you put in. But if you’re able to top up your KiwiSaver account with a lump sum and reach the full $1042.86 before 30 June each year even better - that way you’ll get the full $521.43.
Tax Rate: Like any financial investment, your profits in KiwiSaver will be taxed, so you do need to make sure you’re on the right PIR (prescribed investor rate) tax rate. You can double check this rate by using the calculator on the IRD’s myIR online platform or talking to your friendly Velocity Adviser.
Simon O’Neill is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.