Bolster Risk Management – Simplifying financial risk, insurance and investments for you.

KiwiSaver Confusion

Retirement Savings | Life insurance | Personal wealth advice

We have all heard about KiwiSaver and despite having over 3 million members it would appear that confusion and lack of understanding of how it works is the most common talking point.

By the end of the March 2021 financial year, New Zealanders had invested $81.6 billion dollars into KiwiSaver, with $26,410 being the average amount invested. Not bad going for a scheme which started in 2007. However, given such a large amount of money has been invested into KiwiSaver it is hard to believe that there is still widespread confusion.

Key Ideas:

  • What is KiwiSaver?
  • What is the purpose of KiwiSaver?
  • When can or should you get the money?
  • Choosing the right scheme for you


Are you paying into KiwiSaver but are uncertain about how it actually works? Do you think you are in the right scheme? Where to you go to seek advice?  Read on to find answers to some of these questions.

What is KiwiSaver?

KiwiSaver is an easy, affordable and voluntary savings scheme which was set up by the government in July 2007 to help New Zealanders save for their retirement years.


As employees you can choose to contribute 3%, 4%, 6%, 8% or 10% of your gross (before tax) wage or salary to a KiwiSaver scheme. Your employer in turn contributes with close to 3% of your gross salary.


Your contributions are invested on your behalf by a KiwiSaver provider of your choice. If you don’t choose a provider, Inland Revenue will assign you a default KiwiSaver fund.


A KiwiSaver scheme grows a number ways, automatic contributions, employer contributions, the investment returns from contributions being invested for you by your KiwiSaver provider, government contributions (even if you are not an employee, this can be as much as $521 each year) and any additional money you choose to put in. You can make voluntary contributions, lump sums or regular automatic payments at any time either directly to your KiwiSaver provider or through Inland Revenue.


Most employees contribute the minimum 3% and it is considered by many to be compulsory saving. With the money coming out each pay cycle it has become a way of life and it is not surprising that around a quarter of KiwiSaver members do not regularly check their account balance  or know how much their KiwiSaver is worth.


 What is the purpose of KiwiSaver?

KiwiSaver schemes have become increasingly popular as most of us recognise that when it comes time to retire the government pension and our own personal assets are not going to be enough for us to live comfortably. This realisation has been reinforced with the results of a recent survey carried out by the Financial Services Council which found that the majority of New Zealand adults, around 70%, think they will need to work past the retirement age in order to maintain their current lifestyle.


In addition, 65% of respondents, representing 2.5 million Kiwis, are worried they aren’t on track to have enough money or will be unable to afford where they want to live in retirement. This is scary, given people work hard for the majority of their lives for the reassurance that when they retire they will have the money to do what they want.

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When can or should you get the money?

After you reach 65 years of age you are eligible to take all or some of your contributions out of your KiwiSaver scheme.

Just because you can take out it when you reach 65 does not mean that you should. You have options including leaving your money invested in as long as you like, rebalancing to better meet your needs, making regular withdrawals (note there could be a minimum amount and some fees may apply) or pulling it all out to either spend or invest elsewhere. If you choose to reinvest elsewhere look around as a KiwiSaver return of 10% is a lot better than putting into a bank which may offer only a 1% return.

At 65 you may still be working and if so you can keep your KiwiSaver scheme open and growing. At this point your employer can choose to continue to contribute, although they don’t have to as once you reach 65 you are then eligible for New Zealand Superannuation. The government will also stop its contributions to your KiwiSaver.

You can use KiwiSaver for buying your first home through a KiwiSaver HomeStart grant and home purchase withdrawal.

Early withdrawal from your KiwiSaver is an option under The KiwiSaver Act 2006 if you are suffering financial hardship or a serious illness but is not that easy to do as you will need to meet required policy criteria.

Before you make any decisions, talk to a financial adviser about your financial goals so you can work out the best course of action.

Choosing the right scheme for you

KiwiSaver providers offer a range of investment fund options to suit your needs, for example if you are just stating working or nearing retirement. These funds have different amounts of potential risk and return.

You can choose your fund from a KiwiSaver scheme provider and can switch at any time. You don’t have to stay with your employer’s chosen provider, or a default provider.

Things to consider when deciding on a scheme:

  1. Your Risk profile

Each KiwiSaver scheme invests your money differently. If you choose a low-risk fund, most of your investments will go toward low-return, less-risky options such as bank deposits and fixed-interest investments such as bonds.

If you choose a very aggressive and high-risk fund type, most of your investment will go toward shares. Some of these funds may offer other investment vehicles such as futures and options.

For longer term savers, for example those just starting out in the workforce, you will have the time to take more risk, allow the market to go up and down (and back up again). Economic cycles tend to be round 7-10 years. If you have 3-4 decades before you retire, you will go through these ups and downs before you need to withdraw your KiwiSaver.

The level of risk you choose should be based on factors relevant to your situation.

  1. The Fund type – this is similar to risk level.

The Te Ara Ahunga Ora Retirement Commission split the funds types into five categories; Cash, Defensive Conservative, Balanced, Growth and Aggressive.

Each one is slightly more ‘risky’ than the previous. High risk, means the potential for greater reward (remember nothing is guaranteed). An expert will advise you on the best fund for you.

In simple terms, higher risk funds are more likely to give you a higher return (grow your KiwiSaver faster), but there is a chance that they will also decline during those economic cycles. The low risk funds will grow your retirement nest-egg the slowest, however, their ‘volatility’ during the cycle should be less dramatic.

  1. Active versus Passive

There are pros and cons for both types of approaches and an expert will guide you through this.

In recent times the passive approach has done well, because the market over the last 10+ years has gone up, which means every fund has done well. The downside of passive funds is there is not any downside mitigation, or protection from market losses.

The active approach is more selective on where the investments are made, they can move faster and be more nimble to market changes. There is also flexibility to deploy other tactics to minimise any losses, for instance, some providers will use options to minimise or in some cases, gain from market losses.

  1. First Home buyer?

Are you planning to use KiwiSaver for your first home grant? If so talk to an expert.

  1. The Fees

Not all fees are the same and when deciding on the KiwiSaver scheme best suited for you, the providers’ fee structures needs to be considered.

There is a big drive from some of the better known providers to lower fees and promote it as being the key to a good KiwiSaver scheme. However, if you take a more rational approach higher fees are okay if you are getting better performance from your fund manager.

Fees should be charged based on the actual service provided and giving customers value for money.



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Get advice

Your retirement nest egg is important, especially after working all those years to build it up.

A report in 2016 highlighted that only in 1 in 1,000 people sought advice on their KiwiSaver scheme, this is an alarming statistic given the amount of money invested. 

It is important to seek financial advice to guide you on what is right for you and your circumstances.  After all, you wouldn’t build your own house if you were not a builder, pull out your own teeth if you were not a dentist or fix the brakes on your car if you were not a mechanic. Why leave your financial future to chance?

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Dominic started Bolster Risk Management to help people along their personal finance journey.

He believes that personal insurance is the bedrock to financial security and wealth creation. You have to protect your greatest asset, your ability to earn an income. 

Underpinning this is a philosophy that says Your Money Matters.