6 Big Misconceptions About KiwiSaver

KiwiSaver has been helping New Zealanders save for retirement since 2007. But there are still a lot of myths & misconceptions about how the programme works! Our KiwiSaver expert Yvonne Craig explains a few of them for us.

1. You Must Be Working To Contribute To KiwiSaver

Often people think you must be working or employed to have and contribute to KiwiSaver. But that’s not necessarily the case!

For example, as a parent or guardian you can enrol a child. Or if you're a stay-at-home parent taking time off work, and you can still make voluntary contributions to your KiwiSaver.

KiwiSaver is all about regular contributions compounding over time. So the earlier you join, the better the return. Keeping those contributions regular, even when you’re taking time off, can make a difference in the long run. It also means you’ll continue to get your government contribution (more on that in point 2).

2. It’s Not Worth It If You’re Self-Employed

When you're self-employed it can be easy to not bother contributing to KiwiSaver, since it’s not automatically deducted by your employer. The NZ Government has set up KiwiSaver to incentivise New Zealanders to contribute and invest. Did you know, you only need to contribute approximately $21 per week to access free money from the government?

If you’re eligible, the Government will contribute 50 cents for every dollar you contribute to your KiwiSaver account, up to a maximum of $521.43 each year. That’s extra money to add to your KiwiSaver savings - and it could add up to a whole lot more over time.

The Government contribution is calculated based on your contributions between 1 July to 30 June each year and is paid directly into your KiwiSaver account (usually by the end of August).

3. You Can’t Keep Investing After Age 65

A common misconception is that once you turn 65, you cannot keep investing in KiwiSaver and have to withdraw the money upon reaching retirement age. As of 2020 the government changed the criteria. You can continue to contribute after 65, and the returns are generally much higher than holding cash, even with a conservative fund.

If you stay employed after 65, chat with your employer and see if they will continue to match your KiwiSaver contributions (most of them will). You won't get the Government contribution, but having your employer match your contributions makes a big difference. New Zealanders have a long life expectancy... the longer you live the more money you need! Even if you do continue investing after 65, you can still access the money any time.

4. You Can Draw From Your KiwiSaver At Any Time

KiwiSaver is not the same as a savings account. You can't just withdraw the money when you need it because it’s an investment, and can only be withdrawn under special hardship circumstances.

For example, if you own a house you wouldn’t just sell it to cover expenses. You hold onto the property as an asset long term. KiwiSaver is a long term investment. The money is locked in. If you could withdraw from it too often, your fund wouldn’t grow - leaving you with a very small amount to retire on, and defeating the whole purpose of the programme.

5. The Default Fund Works For Everyone

When you first sign up for KiwiSaver, you’re put into a default fund. A default funds is a good place to start, and as at 1st December 2021, the default fund changed to a balanced fund. It may not be the most suitable fund if you’re young and plan on investing in KiwiSaver for a long time (at ten years or more). It may not give you enough money in the long run so it may be better to move into a growth fund as soon as you can but it’s important that you speak to a Union Plus adviser – they can help you work out your “risk tolerance” or rather, how risky or conservative an investor you are.

6. The NZ Government Can Dip Into The Pool Of KiwiSaver Funds

In 2020 the market dropped and people saw massive decreases in their KiwiSaver accounts. Some people asked "Is the government using my KiwiSaver to pay the wage subsidies?" Absolutely not!

Every KiwiSaver provider has to appoint a trustee and custodian to ensure the security of the investments. It doesn’t matter who your KiwiSaver service provider is, your money is locked in under your name. No one can withdraw the money except for you. They can invest for you, but they cannot access or withdraw the funds.

How Do I Open A KiwiSaver Account? And How Will I Know Which Fund To Join?

KiwiSaver advice and information is accessible to the public. You can google everything you need to know, but it can be overwhelming and hard to know where to look! It’s also easy to stumble on misinformation.

Using advisors like Union Plus can give clarity and understanding. They can educate and inform, help you overcome fear or confusion, and ultimately help you choose the KiwiSaver fund that is right for you. Best of all, their advice is free.

So if you want to get KiwiSaver advice from our trusted advisors, please drop us a message today. No strings attached!