KiwiSaver for beginners

What KiwiSaver actually is

It is an investment account in your name, run by a provider you can choose, holding investments you can choose. It is not a government account and it is not a bank account — your balance rises and falls with the investments inside it.

The government's role is to set the rules, add a contribution if you are eligible, and require employers to contribute while you do. Your money itself is held by an independent supervisor, separately from the provider's own business.

Who can join, and how you got in

• New Zealand citizens and people entitled to live here indefinitely can join.
• If you started a new job aged between 18 and 65 and were not already a member, you were probably auto-enrolled — with eight weeks to opt out if you did not want it.
• You can also join directly through any provider, at any age, including for children.
• You can only belong to one scheme at a time.

Who puts money in

• You — a percentage of your before-tax pay, deducted by payroll. Employees choose from a set list of rates.
• Your employer — a compulsory contribution while you are contributing, taxed before it lands.
• The government — an annual contribution for eligible members, based on what you personally contributed during the KiwiSaver year to 30 June.
• You again, voluntarily — extra lump sums any time, which is how self-employed and non-earning members contribute.

When you can get it out

The default answer is 65. That lock is the trade-off for the employer and government money.

There are limited exceptions: buying your first home (after at least three years of membership, leaving a small minimum balance behind), significant financial hardship, serious illness, permanent emigration, and a few specialist cases. None of them are quick or automatic.

This is why KiwiSaver should not hold money you might need next year. Build a separate emergency fund for that.

How your money is invested

Your provider offers a set of funds ranging from defensive (mostly cash and bonds) through to aggressive (almost entirely shares). The one you are in determines both your expected long-run return and how much the balance bounces around.

If you never chose, you are likely in your provider's default or balanced option. That may be fine. It has simply never been checked against your actual plans.

How it is taxed

KiwiSaver funds are portfolio investment entities (PIEs). Tax is deducted inside the fund at your prescribed investor rate — 10.5%, 17.5% or 28% — based on your income in the previous two years.

If your provider has the wrong rate, you either overpay or get a bill later. It takes two minutes to check and is one of the most common unforced errors in KiwiSaver.

Your first three decisions

Do those three things once and you will be ahead of a large share of members. Then leave it alone, and review when something real in your life changes.

• Pick a fund type that matches when you will need the money — not the one with the best recent return.
• Check your PIR is correct with your provider.
• Set a contribution rate you can sustain, and make sure your personal contributions clear the government contribution threshold each year.