Q&A: KiwiSaver Matters
Wondering when to start and how best to save for your retirement? Join Professor of Finance Aaron Gilbert to find out why KiwiSaver Matters.
Q: Why was KiwiSaver established?
KiwiSaver was established in 2007 because many New Zealanders were not saving enough for retirement. Compared with countries such as Australia, the United States, and the United Kingdom, Kiwis tend to save less. At the same time, government superannuation on its own is no longer enough to fund a comfortable retirement. Estimates suggest even a very basic retirement requires significant savings of between 50 and 200 thousand dollars, so KiwiSaver was designed to help bridge the gap and improve retirement outcomes.
Q: I’m only 24. Why should I care about KiwiSaver now?
There are two main reasons. First, superannuation in its current form is unlikely to exist by the time younger people retire, so relying on personal savings is safer. Second, KiwiSaver benefits from compound interest — earning returns on both your original contributions and the returns themselves. The earlier you start, the more powerful this effect becomes. Starting early means you need to contribute far less overall to reach the same retirement outcome.
Q: How much should I worry about fluctuations in my KiwiSaver?
If you are in the right fund type, you generally shouldn’t worry at all. Growth funds can be affected by short-term market fluctuations, but if you don’t need the money for many years, those ups and downs tend to smooth out over time. By the time you retire, short-term volatility is unlikely to matter.
Q: What’s the best way to figure out which KiwiSaver provider I should go with?
Start by making sure you are in the right fund type — conservative, balanced, or growth — based on your time horizon and risk tolerance. Tools on the Sorted website can help with this. When choosing a provider, remember that past returns do not predict future returns, fees are certain even when returns are not, and higher fees do not necessarily mean better performance. Over the long term, lower-cost providers often deliver better outcomes. Alignment with your personal values can also be an important consideration.
Q: Is it worth paying extra for my funds to be actively managed?
Active management involves fund managers trying to beat the market by selecting winning investments, which is difficult and expensive. While active managers may get it right slightly more often than they get it wrong, evidence suggests that over the long term they generally do not earn enough extra return to justify their higher fees. Passive funds, which simply track the market, aim to capture market returns at a lower cost and often perform better over time.
Q: Are ethical KiwiSaver providers really ethical, and how do I switch to one?
‘Ethical’ is not a legally defined term, so fund managers may use it differently. What matters is whether their investments align with your personal values. Websites such as Mindful Money allow you to see exactly what different funds invest in. Once you choose a provider, switching is straightforward — you simply apply through the new provider’s website and they manage the transfer for you.
Q: I’m worried I won’t have enough money saved for retirement. How much do I need and how do I get there?
The amount you need depends on the lifestyle you want in retirement. For a reasonably comfortable retirement, estimates range from around $750,000 to $1.2 million. KiwiSaver is a useful tool, but minimum contribution rates may not be enough. Increasing contributions where possible and choosing the right fund type — often involving higher risk for higher long-term returns — can significantly improve your chances of reaching your goal.
Q: When should I have my money in a growth fund?
Growth funds invest mainly in shares and property and are suitable if you don’t need your money for at least eight to ten years. While they come with more volatility in the short term, they tend to deliver higher returns over the long run. For people saving primarily for retirement rather than near-term goals, growth funds can be an effective strategy.
Q: I got a pay rise — should I put extra money on my mortgage or into KiwiSaver?
The answer depends on interest rates and flexibility needs. When mortgage interest rates are low, investing the extra money may produce better long-term returns. However, KiwiSaver has withdrawal restrictions. Investing through non-KiwiSaver managed funds or ETFs can provide market exposure while keeping the money accessible if needed.
Q: Should I pay off my interest-free student loan or invest for retirement?
Unless you plan to move overseas, there is little benefit in paying off an interest-free student loan early. Inflation gradually reduces the real value of the loan over time. Investing extra money instead is likely to provide better long-term value.
Q: What should women do to maximise their KiwiSaver?
Women tend to retire with less savings due to the gender pay gap, greater risk aversion, and periods of unpaid leave such as maternity leave. Contributing a higher percentage of income, being willing to take on more investment risk when appropriate, and staying engaged with KiwiSaver during career breaks can help reduce this gap. This gap is a structural issue that requires policy changes. Afterall, we don’t want to punish women for producing future taxpayers.
Q: Is KiwiSaver the best way to save for retirement?
KiwiSaver may not be perfect, but it offers major advantages such as employer contributions and government tax credits — essentially free money. While contribution rates may need to increase to ensure comfortable retirements, KiwiSaver remains the strongest retirement savings framework currently available.
Q: Could the retirement age increase and delay access to KiwiSaver?
It is likely that changes will be made to superannuation, including a possible increase in the retirement age. Other changes, such as means or asset testing, are also possible. The further you are from retirement, the more likely you are to be affected. Building as much personal retirement savings as possible helps protect against future policy changes.
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