Introduced in 2007, KiwiSaver has fast become a household name, helping New Zealanders of all walks of life save for retirement and buy their first home. But there are still a lot of misconceptions around it.

Here are some common ‘KiwiSaver myths’, busted by our SHARE financial advisers. Are any of these getting in the way of your financial future?

It’s just a savings account

Unlike its name might suggest, KiwiSaver is a long-term investment scheme. In the short run, your balance will likely go up and down depending on how the investment markets are performing. But over time, your money will potentially work harder (and grow more) than it if were deposited in a bank account.

Also importantly, you’re not the only one putting money in your KiwiSaver account. Each year, for every dollar you invest, the Government adds 50 cents up to a maximum of $521.43 per annum (the annual Government contribution). And if you’re employed, your employer must also contribute at least 3 per cent of your gross earnings to your KiwiSaver savings (or alternatively a complying scheme, if they offer one).

It’s just for employees

Employer contributions are a great benefit, but KiwiSaver is not just for employees. Unemployed and self-employed people can join too, through a KiwiSaver provider. You’d be under no obligation to contribute, but if you do, you’ll get 50 cents from the Government for each dollar you invest. And if you can afford to put in at least $1,042.86 during each KiwiSaver year (1 July-30 June), you’ll get the maximum amount of $521.43.  

I don’t need KiwiSaver: I’m too young

It’s never too early to start investing in KiwiSaver. Any returns you earn over time are reinvested to earn additional returns – that’s why they’re called ‘compounding returns’. So the earlier you start, the more you can enjoy the benefit of compounding.

Also, KiwiSaver may help you buy your first home. Once again, the earlier you start, the more you may have to put towards a deposit.

The key thing to note here is that under-18s don’t get the annual Government contribution and the employer contribution, which are only available for qualifying KiwiSaver members aged 18 to 65.

I don’t need KiwiSaver: I own my home

While selling your home and downsizing can help you fund your retirement, it’s a good idea not to rely on your property alone when planning for the future. After all, no one knows how the New Zealand housing market will perform in the next few decades. Plus, what if you realise that you like where you live and don’t want to relocate?

Investing in KiwiSaver can help you diversify your income sources and put your eggs in different baskets – just in case.

My employer enrolled me, I’m all sorted

Unlike what many people think, not all KiwiSaver funds are the same. Depending on their likely risk level and return potential, funds can be defensive, conservative, balanced, growth, or aggressive. The higher the likely risk, the higher the return potential. That’s why it’s essential to choose a fund that aligns with your risk profile: how much risk of loss you’re willing to access in exchange for the possibility of larger gains.

If you’ve been automatically enrolled by your employer and don’t remember ever choosing a fund, your savings have most likely been allocated to a ‘default’ balanced fund – which may or may not be appropriate for you.

Like to select your own fund and provider? Get in touch: our SHARE advisers can help you understand your options in more detail.

I’m investing in a conversative fund because it’s safe

Your risk profile essentially depends on two things: how you feel about the ups and downs of the market, and even more importantly, how soon you need your KiwiSaver money (your investment horizon).

For example, if retirement is still a long way off, a higher-risk option may give your money the growth potential it needs to help meet your goals. You have time to ride out the storm. On the other hand, if you’re planning to use KiwiSaver for your first-home deposit in the next two to three years, you may want to limit your risk exposure with a lower-risk fund (it might be right to review fund choice after the purchase!).

It’s important to note here that a conservative fund is a relatively safe option, but there can still be fluctuations during market downturns. What’s more, conservative options offer lower potential returns. So if you have more than 10 years ahead to invest, you’re likely to miss out on key growth opportunities.

My balance has dropped: I need to go ‘conservative’

As we saw during the Covid-19 market downturn of March 2020, switching fund types from higher to lower-risk to avoid further losses can actually hurt your retirement. What it does is lock in your loss, and you could miss out on the recovery when the market bounces back.

Remember – KiwiSaver is a long-term investment tool. So, unless your risk profile has changed, staying the course is probably the way to go. Before making any moves, it can be a good idea to talk to a SHARE adviser: we’re here to help you avoid impulsive decisions.

Looking for advice?

KiwiSaver is pretty straightforward: as long as you set it up appropriately, you only need to check back in once a year, to make sure you’re on track and make adjustments if need be.

That’s why it’s worth taking the time to get things lined up, and as financial advisers, we’re here to answer any questions you may have. Click here to find an adviser near you.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.