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All About KiwiSaver: A Quick Beginner’s Guide for Kiwis

Date Jul 14, 2020
Blog category Kiwisaver
By Michael Speight
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KiwiSaver has helped thousands, if not millions, of New Zealanders to start saving for their future. As Kiwis across the country begin to reap the benefits of their contributions, more and more people have been encouraged to start saving too!

For beginners, KiwiSaver might seem like a complex process… but it isn’t! It’s fairly straightforward, especially if you find a funding scheme that’s perfect for you. With KiwiSaver, you can trust that your contributions will be in good use later on, and will help set yourself up for the future. 

If you’re not sure how KiwiSaver works, here’s a quick guide for you.

Joining KiwiSaver

As long as you’re a citizen or have resident status in New Zealand, you are eligible to enrol in a KiwiSaver scheme. Generally, this only applies if you are over 18 years old; underage Kiwis are subject to different rules.

If you’re under 18 years old

If you’re under 18 years old, you can enrol in a KiwiSaver scheme but not through your employer. If you’re 16, you can only join KiwiSaver if you have your legal guardian’s consent. If you don’t have one, contact your chosen KiwiSaver provider to find out more about your options.

If you are part of a partnership or a trust

If you have a business that runs through a partnership or a trust, you have a choice to either join directly through a scheme provider or through your business payroll. If you don’t have a salary with a Pay-as-you-earn (PAYE) deduction, your only choice is to enrol directly to a KiwiSaver provider.

Investing your contributions

Upon enrolment to KiwiSaver, you’ll be given options on how you want to invest your money. Options range from low-risk to high-risk, depending on the amount of your contribution to be invested in shares. These options are known as:

Conservative funds

Conservative funds invest 20% of your annual contributions in shares, while the remaining 80% in cash deposits. Generally, this is the safest option as you can predict the return-of-investment (ROI) per year but it still highly depends on how the market will perform.

Balanced funds

Coining from the name, balance funds offer a 50-50 investment and cash deposit. This allows for a higher ROI, but with a higher risk as well. If things go wrong in your shares, however,  you can still be assured with the remaining 50% of your contribution.

Growth funds

With the most aggressive investment in shares, growth funds only save 20% of contributions and invest the 80%. This offers the highest risk out of your investment options, but also the most promising returns if the share market performs well.

Withdrawing your KiwiSaver

Generally, you’ll be eligible to withdraw from your KiwiSaver when you retire at the age of 65. You just need to contact your KiwiSaver provider to process it. However, you can have early withdrawal in some cases. Here’s how you can withdraw from your KiwiSaver early:

If you are buying your first home

For Kiwis who are first-time homeowners, they can withdraw their KiwiSaver early to fund their building. After all, this is one of the biggest reasons why most New Zealanders choose to save through a KiwiSaver scheme.

If you are suffering from a serious illness

If you are suffering from a serious illness or injury, you may be able to withdraw some, or all, of your contributions to KiwiSaver. Similarly, in the unfortunate event that you pass away, your family can withdraw your savings to help in shouldering costs.

If you migrate to another country

Emigration involves a lot of costs – from buying plane tickets to starting a new life in another country. With this, KiwiSaver may allow you to withdraw extra cash through your contribution. Conditions apply, so make sure to contact your provider ahead.

Taxing your KiwiSaver

Taxes in your KiwiSaver highly depend on whether you enrolled in KiwiSaver through your employer or not. Generally, your contribution will vary depending on your pay minus the tax. For employers’ share, it’s a bit more complicated. Here’s a breakdown on KiwiSaver and tax.

Your tax-free contributions

As mentioned, the computation for your contribution is determined by your base pay minus tax. This means that your contribution is generally tax-free. On the other hand, you’ll still have to pay your income tax on the full amount of your salary – and not with KiwiSaver deducted.

Your employer contributions

The contributions of your employer to KiwiSaver will be taxed. For you, this means that you might get slightly less contributions from your employer. This is because KiwiSaver, regardless of the funding scheme, is subject to tax.

Your investment income

The income that you gained from your investment will be taxed. This is taxed by your provider, which will then be paid to Inland Revenue under your name. However, all your withdrawals from your KiwiSaver will be tax-free.

Getting the right scheme

The right scheme provider is important if you want the best chances of growing your investment. No one wants to put their money in something that’s only high risk; it must give high return as well. 

Fortunately, Kiwis can get their money’s worth in due time by getting the right scheme funding through a trusted provider. You can compare different providers here at Glimp and find the one that best matches your needs. Simply tell us your details and we’ll give you a tailored result in just a few minutes!

Use our KiwiSaver comparison tool today to grow your money while saving it for the future!

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