When KiwiSaver started in 2007, there was a lukewarm response to implementing a national superannuation plan. Little did the politicians of the time truly realise they were putting in the foundations for New Zealanders to build a savings culture and develop long term wealth. More than 2.9 million people, including children, now have KiwiSaver savings topping $50 billion dollars which gives an average balance of $17,138. We only need to look at Australia, which is about 30 years ahead of us with their superannuation, to see the benefits of saving through your entire working life and having enough savings to provide a meaningful retirement lifestyle. Australians top the world median wealth charts and their superannuation schemes contribute strongly to this.
With KiwiSaver, New Zealanders similarly have an excellent opportunity to actively save for their retirement.
I have given investment advice to hundreds of people who have wanted help with their KiwiSaver and there are five common keys that lead to long-term success:
1. Place your KiwiSaver balance in a fund which is right for your investment timeline. How long will it be before you access your money?
2. Look to increase your contribution rate from 3 per cent to 4 per cent or 8 per cent. It will make a significant difference to your KiwiSaver balance on retirement.
3. Ensure your Prescribed Investor Rate (PIR) tax rate is correct.
4. When choosing a KiwiSaver fund to invest in, look at the fund’s performance, as there is some variation. Don’t just look at the cheapest fees as the fund performance figures are more influential in growing your KiwiSaver balance.
5. Are you interested in certain types of investing? Is socially responsible investment important to you? Find a KiwiSaver that matches your style.
I have seen a raft of issues with KiwiSaver where people have been in the incorrect funds, unnecessarily incurring the default maximum 28 per cent tax rate, or simply in poor performing funds.
The impacts can be large. For example, one client in a Cash Enhanced Fund from 2007 to 2017 received a 2.1 per cent return on their investment. Had they been correctly invested in a Growth Fund, they would have doubled their funds with the better investment returns, so these issues can be significant.
As fund balances grow significantly over the next 10 years, we all need to become more informed or need to seek financial advice to ensure our KiwiSaver money is working hard for us and we get a good rate of growth.
If you have questions regarding the above five points, you should feel free to ask your KiwiSaver provider for personalised advice from an Authorised Financial Adviser (AFA). An AFA is the required qualification in New Zealand to give investment advice. You shouldn’t need to pay anything extra for this service if you have a good KiwiSaver provider. As an alternative, look for an AFA working independently. A number of KiwiSaver providers will pay for them to provide you with the advice you are looking for.