Maximizing Your KiwiSaver: A Complete Guide for New Zealanders

Who Can Join KiwiSaver?

KiwiSaver is a voluntary savings scheme designed to help New Zealanders save for their retirement. It’s available to all New Zealand residents and those entitled to live here permanently who are under the age of 65.

While most employees are automatically enrolled when starting a new job, it’s important to understand that KiwiSaver isn’t just for employees – self-employed individuals and even children can join through a KiwiSaver provider of their choice.

Automatic Enrollment: Who’s In and Who’s Out?

When you start a new job, your employer will typically enroll you in the scheme automatically. However, not everyone falls under this automatic enrollment rule. Those exempt include:

• Individuals under 18 years of age
• Casual agricultural workers or Election Day workers
• Private domestic workers
• Employees on short-term contracts (28 days or less)

It’s worth noting that even if you’re automatically enrolled, you have the option to opt out. This must be done within a specific timeframe – between the end of week 2 and the end of week 8 of your employment. To opt out, you’ll need to complete and submit the KS10 form to your employer or directly to Inland Revenue.

Contribution Rates: How Much Should You Save?

One of the key decisions you’ll make with KiwiSaver is your contribution rate. As an employee, you have three options:

• 3% (the default rate if you don’t make a selection)
• 4%
• 8%

These contributions are deducted from your gross salary or wages before tax. Choosing the right contribution rate depends on your financial situation and retirement goals. While contributing more helps your savings grow faster, it’s important to ensure your day-to-day finances aren’t strained.

Employer Contributions: Free Money for Your Future

Since April 2013, employers are required to contribute a minimum of 3% of your gross salary to your KiwiSaver account. This is essentially free money toward your retirement!

However, these employer contributions are subject to Employer Superannuation Contribution Tax (ESCT). The ESCT rate is determined by your income level, working on a progressive scale similar to income tax rates. This means the actual amount that goes into your KiwiSaver account will be slightly less than 3% after tax is deducted.

Government Boosts to Your Savings

The New Zealand government also helps boost your KiwiSaver savings through:

• Member Tax Credits: If you’re 18 or older, the government contributes up to $521.43 annually (effective from July 2011). To receive the full amount, you need to contribute at least $1,042.86 to your KiwiSaver account during the year.
• First Home Benefits: If you’re planning to buy your first home, KiwiSaver offers significant advantages. Eligible members can withdraw most of their KiwiSaver savings for a first home purchase and may qualify for a first home deposit subsidy through Kāinga Ora – Homes and Communities.

It’s important to remember that unlike some other government schemes, KiwiSaver doesn’t come with a Crown guarantee. This means your investments are subject to market fluctuations and not guaranteed by the government.

Employer Responsibilities

If you’re an employer, you have several responsibilities regarding KiwiSaver:

• Provide new employees and interested existing staff with an Employee Information Pack (KS3)
• Submit employee details to Inland Revenue for enrollment
• Deduct KiwiSaver contributions from employees’ gross salary
• Forward these contributions to IRD through the PAYE system

Business Like NZ can advise businesses on your Kiwi Saver responsibilities as an employer.

Choosing the Right KiwiSaver Provider

With numerous KiwiSaver providers in the market, choosing the right one can significantly impact your retirement savings. Each provider offers different fund options, fees, and services.

For a comprehensive list of KiwiSaver providers, visit www.kiwisaver.govt.nz. Before making a decision, consider factors such as:

• Fund performance history
• Fee structures
• Investment approach
• Customer service quality
• Additional benefits offered

Getting the Most Out of Your KiwiSaver

To maximize your KiwiSaver benefits:

• Contribute enough to receive the full government member tax credit
• Choose an appropriate fund type based on your age and risk tolerance. Learn more: Why Are You Still in a KiwiSaver Default Fund?
• Regularly review your KiwiSaver account performance
• Consider increasing your contribution rate if your financial situation allows
• Consult with licensed financial advisors

For personalized advice on how to optimize your KiwiSaver strategy or if you have specific questions about your situation, please contact Business Like NZ Ltd. Our team can help put you in touch with an expert advisor that is qualified in giving financial advice. This will help you can navigate the complexities of KiwiSaver as an investor and ensure you’re on track to meet your retirement goals.