Could you be earning more money on your KiwiSaver balance? Here are six ways you could be missing out on cash to help you with your first home or retirement.
You’re in a default fund
Around 400,000 Kiwis have their KiwiSaver balance in a ‘default’ fund. This is the fund you were automatically allocated to when you joined KiwiSaver, and you stay in it unless you actively decide which provider you want to manage your money.
Default funds are not necessarily bad, but it’s important to find out if you’re in one, because it might not be the best investment choice for you.
Default funds tend to invest conservatively, meaning they’re lower risk, but in return, they usually make lower returns. If you’re in KiwiSaver for the long term, you might be able to take on more risk – and get more money in returns.
You’re in the wrong type of fund
Even if you’ve made a decision about where your KiwiSaver money is, you might still be in the wrong fund type for your situation.
The fund that suits you best depends on factors like how long you’ll have your money invested and how comfortable you are with investing.
If you’re investing for 10 years or more, and you’re comfortable with investing, you could build your balance a lot more over the long term by moving from a conservative or balanced fund to a higher risk fund, like a growth fund.
Help me pick my fund type
You’re paying too much in fees
KiwiSaver providers charge different types of fees to manage your money, and these can vary. Check how much you’re paying in total fees by checking the dollar amount in your annual statement.
You might be happy with how much you’re paying, or you might be getting ripped off!
Returns can vary, but fees always come out of your balance. Generally, the less which comes out of your savings the better. At JUNO, we charge a monthly, low, fixed fee, not fees in confusing percentages. We want to help make your KiwiSaver account easy to understand, and we want to see your balance grow!
Your KiwiSaver provider is a poor performer
The best way to rate KiwiSaver funds is against their market index. A market index is meant to have a similar make-up to the fund you’ve chosen. This is important because it means the index faces similar risks to your fund. If your fund does better than its index, then it’s outperforming. If it does worse, it’s underperforming.
Providers might advertise how good their returns have been over a quarter, or over a year, but it’s long-term returns that really count. Great performance for a year may never be repeated, so you can’t rely on it. However, a long period of underperformance in a good market may be a bad sign. If that’s your fund, you should look for a provider that can do better. Or at least ask your provider some hard questions about why they didn’t do well, when the market did.
You can look at online tools to compare your fund’s performance against other, similar funds. Sorted’s Smart Investor tool, the FMA’s KiwiSaver tracker, and reports like Morningstar’s, can provide a good guide. (Note, you won’t yet see JUNO and some other providers because they’re too new).
You have the wrong tax code
Around 1.5 million Kiwis are on the wrong tax rate, or PIR (prescribed investor rate), for their investments, including many KiwiSaver accounts.
The rate of tax you pay on your investment returns, is based on your income. Because income can change, so can the tax rate. This matters because if you pay too much tax on your KiwiSaver account, you can’t get it back. And if you don’t pay enough tax, you have to top it up.
Paying more tax than you need to reduces your balance, and you’ll have less money to earn returns on.
Missing out on the government contribution
If you earn at least NZ$34,762 (before tax) and you contribute at least 3 per cent of your salary into KiwiSaver, you’ll automatically qualify for a free bonus from the government. This is up to $521.43 every year.
It used to be called a Member Tax Credit, or MTC, but is now known as the government contribution.
If you’re self-employed, you can get it too. Just put the required $1,043 into your KiwiSaver account each year (about $20 a week). If you can’t afford to put the full $1,043 into your account, you’ll still get a proportion of the government money. If you put in half, you’ll get half.
This government contribution can really help boost your balance over the long term and a bigger balance means you get higher returns.
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Published 11 October 2019
Story by Claire Connell, JUNO
Pie Funds Management Limited is the issuer of the JUNO KiwiSaver Scheme. You can read our Product Disclosure Statement here. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. It does not constitute financial advice. We recommend you speak with an independent financial adviser.