KiwiSaver 101 – How does KiwiSaver fit into your investment portfolio?

Over 3.1 million New Zealanders are enrolled in KiwiSaver with $83 billion in the scheme, making it perhaps the most widespread investment in the country. This article covers how the scheme works, what you should consider when choosing a fund, how it fits into your broader investment portfolio, and whether it’s worth it. So if you’re new to KiwiSaver or just need a refresher, read on to explore all the ins and outs of our nation’s retirement savings scheme.

101 articles:
Shares 101 – How to buy shares, which companies to pick, and more
Bonds 101 – 5 things to know about investing in bonds
Funds 101 – What’s the difference between an Index Fund, ETF, and more?
– KiwiSaver 101 – How does KiwiSaver fit into your investment portfolio? (this article)
Cryptocurrency 101 – Is it investing or gambling?

This article covers:
1. How does KiwiSaver work?
2. What are the key benefits of KiwiSaver?
3. How do I choose which KiwiSaver fund to invest in?
4. How does KiwiSaver fit into your investment portfolio?
5. The case against having KiwiSaver

1. How does KiwiSaver work?

KiwiSaver is a scheme designed to help New Zealanders invest for their retirement, as well as buying their first home.

Joining KiwiSaver

You can join KiwiSaver voluntarily at any time by signing up for an account with one of the 35 KiwiSaver providers. These providers are investment fund managers who take care of your KiwiSaver money for you, and include the major banks like ANZ, platforms like InvestNow, and boutique fund managers like Milford.

Otherwise if you’re between the ages of 18 and 65, and starting a new job, your employer will enrol you into the KiwiSaver scheme automatically. At this point you can choose to join a provider of your choice – if you don’t, you’ll be enrolled with either a default KiwiSaver provider (chosen by the government), or a provider chosen by your employer.

You must be a New Zealand citizen or permanent resident, and live in New Zealand to join KiwiSaver.

Contributing to KiwiSaver

There are four main ways money is contributed to your KiwiSaver account:

  • Employee contributions – If you’re an employee, KiwiSaver employee contributions are automatically deducted from your wages/salary. By default this will be 3% of your gross pay, but you can choose to increase your contributions to 4%, 6%, 8%, or 10% of your pay.
  • Voluntary contributions – You can make additional contributions to your KiwiSaver account at any time – even if you’re not working or self-employed.
  • Employer contributions – If you’re an employee contributing to KiwiSaver, and you’re over 18 and below 65, your employer must also contribute at least 3% of your pay into your KiwiSaver account. These contributions have taxed deducted from them so will be lower than your employee contributions, even if they’re both at the same rate.
  • Government contributions – If you’re over 18 and below 65, the government will contribute $0.50 to your KiwiSaver account for every $1 you make in employee or voluntary contributions. The maximum government contribution is $521.43 per year (with each year running between 1 July and 30 June), and is paid out annually after 30 June.

All contributions go to the IRD, who then passes the money on to your KiwiSaver provider. Your provider will put that money in a fund of your choice which invests in shares, bonds, and cash, giving your contributions the opportunity to grow and earn investment returns.

It can take around 3 months for your first contributions to reach your KiwiSaver provider, so be patient!

Quitting KiwiSaver

Once you join KiwiSaver you can’t quit (you can only opt-out of KiwiSaver if it’s between 2 and 8 weeks of your employer automatically enrolling you into the scheme). You can’t get out of the scheme by changing your job – if you start a new job, you remain enrolled with your current KiwiSaver provider and there’s no option to opt-out.

However, you can pause your contributions to the scheme. If you’ve been a member of KiwiSaver for at least 12 months, you can apply for a Savings Suspension of between 3 and 12 months. This pauses your employee contributions until the Savings Suspension expires, after which you must renew the suspension if you want it to continue. Your employer might also stop their employer contributions while the suspension is in force.

Withdrawing money from KiwiSaver

Any contributions you’ve made to the scheme can’t easily be withdrawn. You can only get your money out in very specific circumstances:

  • When you turn 65.
  • When you’ve been a member for a least 3 years, and are using the money to buy your first home. In this case, you must leave at least $1,000 in your KiwiSaver account.
  • When emigrating to Australia, in which case your money must be transferred to an Australian Super scheme.
  • When emigrating to another country, in which case you can’t withdraw any government contributions (but you can still withdraw any investment returns made on them).
  • If you’re experiencing significant financial hardship.
  • If you have a serious illness.
  • If you have a congenital life-shortening disease.
  • If you die, in which case the money is paid out to your estate.

Despite these restrictions, at no time does the government own your KiwiSaver money. Your KiwiSaver money always remains yours, and is managed by your KiwiSaver provider. The government’s role in KiwiSaver is to administer the scheme, and set the rules around the scheme (such when you’re allowed to withdraw the money).

2. What are the key benefits of KiwiSaver?

Apart from helping you invest for retirement or your first home, why would you join KiwiSaver?

Investment Returns

Your KiwiSaver is an investment. Your fund invests into assets like cash, bonds, shares, and sometimes alternative assets like Bitcoin – therefore the money you contribute is likely to increase in value, as the assets of the fund grow and pay interest or dividends. Depending on your fund, these investment returns are likely to be higher than leaving your money in a savings account or term deposit.

Automatic Investing

As an employee, your employee contributions are automatically deducted from your pay before it even reaches your bank account (like how PAYE tax is automatically deducted). This makes contributing to the scheme easy as no action is required on your part. And you might not even miss the money that you’re putting in, given the 3-10% you’re contributing never hits your bank account.

Employer Contributions

Your employer must also contribute to your KiwiSaver at a rate of at least 3%. Some generous employers may contribute at a higher rate (e.g. 4 or 6%) if you also increase your employee contributions to that higher rate. These contributions will typically be paid on top of your wages or salary package, so it’s like getting paid an extra 3%.

However, some employers will choose to include their employer contributions as part of your salary package. In this case you won’t get any benefit from employer contributions as they’re being taken from your own salary. So ensure you check your employment contract to see how the contributions are being deducted.

Some employers may offer their own superannuation scheme as an alternative to KiwiSaver. They aren’t required to make employer contributions if they’re already contributing to an alternative scheme for you.

Government Contributions

The maximum government contribution of $521.43 per year represents a 50% return on your employee or voluntary contributions of up to $1,042.86 each year. These contributions are invested alongside your other contributions, so you get the further benefit of earning investment returns on the government contributions. Over 40 years, the government contributions alone could add up to over $140,000 (assuming it made investment returns of 8% every year).

The maximum government contribution will be pro-rated if you join KiwiSaver or become eligible/ineligible for the government contribution partway through the year. For example, if you join KiwiSaver on 1 January (halfway during the KiwiSaver year), your maximum government contribution will be $260.72.

KiwiSaver First Home Grants

If you’ve been contributing to KiwiSaver for at least 3 years, you may be eligible to apply for a First Home Grant when buying your first home. You could get:

  • $1,000 per year you’ve contributed, up to a maximum of $5,000, if you’re buying an existing home.
  • $2,000 per year you’ve contributed, up to a maximum of $10,000, if you’re buying land or a newly built home.

Goal oriented

Saving for retirement (or your first home) requires a significant amount of commitment and money, but they are important goals to consider. For example, there is no guarantee the government will financially support you once you reach retirement age. KiwiSaver helps you to slowly build up the financial means to support yourself once you reach 65, and prevents you from using that money to splash out on other things that probably won’t help you reach your financial goals.

3. How do I choose which KiwiSaver fund to invest in?

Your KiwiSaver contributions are invested with a KiwiSaver provider, in a fund of your choice. There are at least 35 KiwiSaver providers offering hundreds of different funds, so how do you choose which one to invest in?

Your fund type

Most important thing to get right is your fund type. This will be the largest driver of your potential returns regardless of which provider you use. Very broadly speaking, KiwiSaver funds can be categorised into three different types:

  • Growth – Mostly invested in Growth assets like shares, making the fund more volatile but with higher potential for growth, so better suited to members who aren’t intending to withdraw their KiwiSaver money for the long-term.
  • Balanced – About evenly split between Income and Growth assets, making these funds better suited if you’re intending to withdraw the money in the medium term, or if you have a lower tolerance to the ups and downs of the sharemarket.
  • Conservative – Mostly invested in Income assets like bonds and cash, making the fund less volatile but with lower potential for growth, so better suited to members who are intending to withdraw their money in the short-term.

You can choose your fund type when you first sign up with a provider, and you can switch to another fund at any time. However, if you don’t actively choose your provider and fund type, you’ll end up in a default fund which is conservative in nature.

So why is choosing the right fund type so critical? The below table shows the average return of each fund type over 10 years (to 30 June 2021), as well as how much an account would be worth after investing over those 10 years if you started with $10,000 and contributed $200 every month:

Source: Morningstar KiwiSaver Reports

Given KiwiSaver is primarily designed for investing for retirement, most members will be investing for the long-term. So it makes sense for these members to be in Growth funds to take advantage of the higher potential returns, especially when they have plenty of time to ride out any volatility in the financial markets. However, over 12% of KiwiSaver members are in Conservative default funds, potentially paying almost $2,000 per year in lazy tax by not switching to a Growth fund!

From 1 December 2021, default fund members will transition to Balanced funds.

However, the lower returns of Conservative funds don’t necessarily make them bad. They are better suited to those who need to withdraw the money in the short-term like if you intend to use the funds to buy a house in the next few years. Their lower returns are offset by their lower volatility – useful in helping shield your house deposit from the dips of the sharemarkets.

Your provider

Picking the right provider is a secondary concern. Here are some things you might want to consider when choosing one:

  • Active vs Passive management – Most providers actively manage their funds, picking and investing in assets they think will outperform the market. Examples of active KiwiSaver providers are Milford, Booster, ANZ, and JUNO. Other providers passively manage their funds, investing in index funds with the objective to match the average return of the market (with the belief that it’s hard for active managers to beat the market over the long-term). Examples of passive KiwiSaver providers are Kōura, SuperLife, and Simplicity (though some aspects of their funds are actively managed).
  • Traditional diversified funds vs DIY – Most KiwiSaver providers offer diversified funds which invest in a pre-made mix of cash, bonds, and shares. For example, Simplicity and JUNO both offer Conservative, Balanced, and Growth funds. Some KiwiSaver providers give you the ability to pick specific funds and assets to make up your KiwiSaver fund. For example, InvestNow KiwiSaver allows their members to select from 33 different funds, while Craigs KiwiSaver allows members to select from over 200 individual companies and funds to make up their KiwiSaver portfolio.
  • Alignment with your ethics – While many KiwiSaver providers exclude investment into nasty industries such as nuclear weapons, gambling, and tobacco, you may have a desire for your fund to go further in excluding investments you dislike (such as fossil fuel companies, and companies that abuse human rights). You may also have a desire for your KiwiSaver fund to actively select companies that have a positive impact on the world. Different KiwiSaver providers have different approaches in excluding and including investments, so you may want to research which provider best aligns with your ethics.
  • Fees – Most KiwiSaver providers charge a fixed annual fee + a percentage based management fee. For example, ANZ charges an $18 annual fee, plus a 1.09% management fee for their Growth fund. Fees have a big impact on your account over the long-term so you should pick a provider whose fees are good value for money, taking your account balance into consideration. For example, Simplicity’s management fee is a very low 0.31%. However their $20 annual fee is high if you have a small account balance (on a $1,000 account, the $20 equates to a 2% fee!) – in this case it would be more cost effective to go with BNZ who charge a flat 0.45% fee. You can use this calculator to easily compare the total fees between two KiwiSaver funds.

You can switch between KiwiSaver providers at any time by signing up for an account with your new provider – they’ll take care of the paperwork for you. It will take up to a month for the switch to complete.

Further Reading:
The ultimate guide to KiwiSaver funds and schemes
Simplicity vs JUNO vs BNZ – Battle of the low cost KiwiSaver funds
Build your own KiwiSaver – InvestNow vs SuperLife vs Craigs

4. How does KiwiSaver fit into your investment portfolio?

Given KiwiSaver is an investment, how does it fit alongside your other investments like shares and non-KiwiSaver funds? Here are two ways you can use KiwiSaver in your investment portfolio:

A – KiwiSaver as the core of your portfolio

It’s possible to use your KiwiSaver fund to make up a core part of your investment portfolio, and as your primary means of investing for your retirement or first home. It’s often said that KiwiSaver will be the second largest asset for many New Zealanders after their family home. Having KiwiSaver as the core of your portfolio doesn’t mean you can’t invest in other things like shares and non-KiwiSaver funds, but these investments might only make up a relatively small proportion of your assets.

Pros of this approach

  • You can auto-contribute up to 10% of your pay into the scheme. There is no effort required on your part to invest this money. You can make voluntary contributions at any time to add more money to your KiwiSaver fund.
  • Your money is locked up for the specific goals of retirement or buying your first home. You can’t get your hands on that money if you suddenly wanted to use it for a new watch, new handbag, or to go on holiday. This is great in helping you stay the course in progressing towards your goals.

Cons of this approach

  • The restrictions on withdrawing your KiwiSaver money do not flex to cater for changes to your life circumstances. For example, you may aspire to retire earlier than 65, change your mind about buying a house, or decide to start your own business – none of these circumstances would make you eligible for withdrawal.
  • There are no tax benefits for contributing to KiwiSaver. You are taxed the same regardless of whether you contribute 3% or 10% to KiwiSaver.
  • Even though your money is locked up, you still need discipline to stay the course. Because Growth KiwiSaver funds are mostly invested in shares, they can be volatile and suffer from quick drops in value from time to time. Discipline is needed to stick to your Growth fund and not panic when dips occur – unlike the many investors who switched to Conservative funds when the pandemic hit, and lost out when the sharemarkets quickly recovered.
Sharemarkets recovered quickly, while bond markets stayed flat after the pandemic begun. Switching to a Conservative fund would have meant missing out on that quick recovery.

B – KiwiSaver to supplement your portfolio

This approach involves using KiwiSaver to supplement your portfolio, with the bulk of your investments being in assets outside of the scheme. To achieve this you might contribute the minimum amount needed to extract the maximum benefits out of KiwiSaver, while investing the rest of your money into shares or non-KiwiSaver funds.

Pros of this approach

  • You can take advantage of the sweet benefits of KiwiSaver (particularly the government contributions) while maintaining flexibility of your investments, given your non-KiwiSaver investments can be withdrawn at any time.
  • Even if you contribute the minimum amount needed to maximise the employer and government contributions, your KiwiSaver fund could still grow to become substantial in size. All the contributions and investment returns stack up and compound over a long period of time.
  • Investing outside of KiwiSaver is no more difficult than investing inside KiwiSaver. Many KiwiSaver providers have identical non-KiwiSaver equivalents of their funds, so you can mimic your KiwiSaver investments while having the flexibility to withdraw this money at any time.

Cons of this approach

  • This approach requires even more discipline. There are no automatic contributions coming out of your pay, and no restrictions on withdrawals to keep you on course with your investment plan.
  • You might double up on fees. For example, if you use Simplicity for your KiwiSaver AND for your non-KiwiSaver investments, you’ll pay two sets of $20 annual membership fees.

Further Reading:
6 ways to build a long-term investment portfolio in New Zealand

5. The case against having KiwiSaver

KiwiSaver isn’t the only way to invest your money, nor is it a silver bullet to achieving a house deposit or comfortable requirement. But for most people, I think it’s worth having KiwiSaver just to harvest the benefits.

The government contribution alone represents a 50% return on your contributions (of up to $1,042.86 per year), and you’ll also make investment returns on top of these contributions. This is worth it even if you’re unemployed or self-employed – it’s pretty hard to find the same rate of return elsewhere. All it takes is to contribute just over $20 a week to get the maximum $521.43 government contribution each year. If you intend to move overseas, you won’t be able to withdraw the government contributions, but at least you’ll be able to keep the returns you’ve made from them.

However, there are two groups of people who may wish to decide against having KiwiSaver:


Under 18s aren’t eligible for employer or government contributions, so there is limited benefit for kids to invest in KiwiSaver. It only serves to lock up your kids’ money until they buy a house, and there’s no guarantee they’ll want to buy one, or will find it feasible to do in the future:

More than half of Aucklanders over the age of 15 currently rent, with this number expected to rise to 60% by 2043.

Clive Mackenzie, CEO, Kiwi Property Group

The money cannot be used for education, to start a business, or to pursue any other goals apart from reaching 65 years old(which is a long time away!).

Over 65s

Since 2018, over 65s have been able to join KiwiSaver. However there is little benefit to this over investing outside of KiwiSaver, given over 65s aren’t eligible for government contributions or employer contributions (although some employers might be generous enough to continue their contributions). It seems a little pointless to join when there are so many non-KiwiSaver investment options out there.


The KiwiSaver scheme helps New Zealanders invest for their retirement – something even younger Kiwis need to consider, given there’s no guarantee future governments will provide universal financial support to retirees. The scheme has some awesome benefits like employer and government contributions, which are enough reason alone for why you should strongly consider enrolling in KiwiSaver if you haven’t already.

But the scheme is no silver bullet in helping you achieve your financial goals. KiwiSaver funds are just investment funds with restrictions – so unless you need these restrictions to help you stay the course in reaching your goals, it might be worth looking at investing the bulk of your assets outside of KiwiSaver for the added flexibility you’ll have.

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The content of this article is based on Money King NZ’s opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with an authorised financial adviser before making any investment decisions.

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