If you’re new to KiwiSaver, or considering signing up, you might get bombarded with a lot of new information you don’t quite understand.
Or maybe you’ve been enrolled in KiwiSaver for years, but don’t know the basics. At JUNO, we think it’s important for you to know what your KiwiSaver balance means, and to make sure you’re getting the most out of your investment.
We’ve compiled an easy-to-understand list telling you what common KiwiSaver terms and phrases mean.
What is KiwiSaver?
KiwiSaver is a government savings scheme set up more than 10 years ago. It’s an initiative designed to help Kiwis save for their retirement. The money in your KiwiSaver account is invested, which means it’s not just a regular savings account. There’s the chance to make money off your money. When that happens, you can see your balance grow.
It’s important to know, too, that while it was set up by the government, it is not guaranteed by the government.
What’s a Fund?
Your KiwiSaver money is invested in a fund, with other people’s money. The fund type you choose for your money depends on your investing time frame and how much risk you’re prepared to take. The JUNO KiwiSaver Scheme offers three funds, so you can pick a fund that suits you best. We’ve got a helpful guide for you to work out which fund could be best for you.
What is a Default Fund?
When you sign up to KiwiSaver, if you don’t have a provider in mind to manage your money, you’ll be automatically put into a scheme. These are called default funds. It’s a good idea to look at the fund type you’re in, and check it’s the best for your age and stage. Default funds are safer than many other funds, but tend not to earn you big returns.
What are KiwiSaver Fees?
You pay fees on your KiwiSaver balance. Fees cover the costs of your account, to contribute to the cost of running the team and the company that invests your money, and, in some cases, to pay special fees to reward performance (‘performance fees’). Fees eat into your KiwiSaver balance and can really cut into your savings. It’s important to know what you’re paying, and that you’re happy with what you’re getting in return. If you are paying high fees, there must be a good reason for it – good returns, good service or, ideally, both.
What does Contributions mean?
When you sign up to KiwiSaver, you can automatically put a percentage of your pay into your KiwiSaver account. That’s called a contribution. You pick a contribution rate – 3, 4, 6,8 or 10 per cent – of each pay. Your employer will match this with another 3 per cent. You can also make voluntary contributions any time you have spare money. You might qualify to get some money from the government too, see below.
What’s a Government Contribution? (Previously called a Member Tax Credit)
This is the money the government puts into your KiwiSaver account, as long as you’re over 18 and putting money into it. The government gives you 50 cents for every dollar that you put in, up to a maximum of NZ$521 every year. To get the full amount, you’ll need to put in NZ1,043 each year yourself. That’s a tiny bit more than $20 a week.
What’s a Savings Suspension? (Previously called a Contributions Holiday)
If you’ve been a member of KiwiSaver for longer than a year, you can take a break from contributing money from your pay – called a Savings Suspension. But before you do, think about your financial future, because a break could leave a big hole in your savings over time.
What’s a KiwiSaver Withdrawal?
Because KiwiSaver is designed to help Kiwis save for their retirement, you can’t take your money out until you are 65. But there are a few exceptions. You can use your money for a first-home deposit, as long as you fit within the rules. You might be able to take your money out if you’re really sick, or suffering serious financial hardship, or leaving the country for good.
What’s a KiwiSaver Balance?
When you log into your provider’s website, you’ll see your KiwiSaver balance. This is the total money in your account. It’s made up of your contributions, employer and government contributions, and any growth or interest your money’s made. Usually your balance goes up, but it might go down from time to time, because it’s invested in the financial markets. Don’t worry too much about this – it’s called market volatility (see below).
What does Volatility mean?
Market volatility is variation, or ups and downs, in the share market, or other types of markets. This means your KiwiSaver balance can drop from time to time, because it’s usually invested in these types of markets. The more your fund is designed to grow, the more it will probably move up and down over time. Over the longer term, dips tend to matter less. But the closer you are to your goal, the more dips matter (because there is less time to recover from them).
What is a PIR tax rate?
You pay tax on your KiwiSaver balance. Your tax rate is called your PIR, which is short for Prescribed Investor Rate. For individual New Zealand tax residents, there are three main rates you could be paying – 10.5%, 17.5% or 28%. It’s important you’re on the right tax rate, so that you don’t pay too much – you won’t get it back if you overpay.
Published 19 February 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. We recommend you speak with a financial adviser. All content is correct at time of publication date.