Want to sort your KiwiSaver? Here's how

Monday, 22 July 2019

The experts say: sort your KiwiSaver.

If you've given any thought to getting your personal finances in line, you've probably been told to pay some attention to your KiwiSaver account.

It's not as much fun as saving for a holiday or new car, and not as instantly rewarding as negotiating a pay rise, but a healthy KiwiSaver account will make a big difference to your life.

Here are the seven steps to follow to get on track.

Are you enrolled?

First things first. This should be easy - most providers send regular updates to remind you that they're the ones looking after your money.

* KiwiSaver 'lump' sum deposits pour in for taxpayer subsidies

* Kiwis still lack knowledge of their second-biggest financial asset, KiwiSaver**

But sometimes it's not so straightforward.

Usually, if you've changed jobs in the last 10 years and were aged between 18 and 64 at the time, you'll have been enrolled in to a KiwiSaver fund unless you expressly told your boss you wanted to opt out.

That won't have happened, though, if you work on temporary or casual contracts, or you're self-employed.

If you are not sure if you are part of KiwiSaver or not, get in touch with Inland Revenue.

It can tell you what contributions have been received from your employer, what scheme you are part of and help you update your contact details so that the provider can get in touch.

What fund are you in?

The next step is to work out what sort of fund you are in, within that KiwiSaver provider's stable.

Generally, KiwiSaver funds fall into the categories conservative, balanced, growth and aggressive. If you've not actively chosen a fund, it's likely you're in a default, conservative fund.

Conservative funds are good for protecting your money (so the provider doesn't have to worry so much about money being 'lost' in a fund that the investor didn't actually choose) but they are not a good option for long-term savings.

Your provider should offer help to determine what the right fund is for you – many have helpful online questionnaires that step you through the decision. Sorted's Fund Finder is a good option, too.

Generally, the longer you have until you need the money, the riskier the fund you should be in.

Growth and aggressive funds will fluctuate more with share market movements but they should deliver better returns over the long run. Some providers estimate the difference can be hundreds of thousands of dollars over a 40-year working life.

How much are you contributing?

If you've just set-and-forget your KiwiSaver fund, you're probably contributing 3 per cent of your pay.

You should also be getting another 3 per cent from your employer – this is meant to be on top of your normal salary but an increasing number of businesses seem to be negotiating with staff to include it as part of a total package.

Getting your KiwiSaver sorted now is a gift to the future you.

You can choose to increase this to either 4 per cent, 6 per cent, 8 per cent or 10 per cent, instead.

Check what your employer offers – if they'll match an amount higher than 3 per cent, it's worth increasing your contributions.

Many providers offer calculators that help you work out what final total you are on track to save at your current contribution level - and what difference a change to that percentage level could make.

This is worth doing from time to time, to check that you're still happy with the result you're likely to get.

Are you at least getting the member tax credit?

At the most basic level, you should at least put $1043 in your account each year so that you get the full $521 available from the government in the member tax credit.

This works out at about $20 a week.

If you're a salaried employee earning $34,762 a year before tax and contribute at least 3 per cent of your pay to your KiwiSaver account, you don't need to do anything. Everyone else should check in with their KiwiSaver provider to ensure they contribute enough to receive this perk - it's the only one of the government sweeteners left.

What are you paying in fees?

Fund managers can't agree on how much we should care about fees.

Different investment styles require different levels of work - and so cost different amounts.

Someone who is constantly tweaking your investments for you will probably charge more than someone who just puts your money in a fund that tracks the market.

It is the after-fee returns that really matter - that's the amount the provider delivers each year after all fees are paid.

But fees are the one thing in the world of investments that you actually can control, so it's worth taking the time to understand what you're paying, how that compares to similar funds, and what you get for your money.

The FMA has a KiwiSaver tracker tool that will show you how your fund stacks up.

Don't get forget it about it

As your circumstances change, your KiwiSaver fund might need to, too.

If you were using it to save for a house deposit, and then reached that goal, you should switch to a more growth-oriented fund to get back on track to save for retirement, instead.

As you get older and have fewer other commitments, you might choose to increase your payments.

But don't check it too often

It's human nature to worry when a balance drops - even if it's money you aren't going to want to use for many years.

With a long-term investment like KiwiSaver, though, the best thing to do in a market downturn is to ride it out.

Changing funds when you see a drop just cements the loss.

If you find it distracting or worrying to see your balance move around, stop checking it online - or, if you're with a bank provider, ask for it to be hidden from your online banking.