How does KiwiSaver work?

What is KiwiSaver, in plain terms?

KiwiSaver is a voluntary, work-based savings scheme designed to help you build up money for retirement. Inland Revenue describes it exactly that way. You put money in, your employer usually puts money in, and in most years the government adds a small amount too.

The money is not held by the government. It is held and invested by a KiwiSaver provider, which is a private company licensed to run a KiwiSaver scheme. There are many providers, and each runs several funds you can be in.

KiwiSaver is for New Zealand citizens and permanent residents who live or normally live in New Zealand. People on temporary, visitor, work or student visas cannot join. Being in KiwiSaver does not affect your entitlement to New Zealand Superannuation at 65.

Are you automatically enrolled in KiwiSaver?

You are automatically enrolled if you start work with a new employer, you are eligible, and you are aged between 18 and 65. This happens through payroll, so many people are members without ever having filled in a form.

If you were automatically enrolled and do not want to be in, there is an opt-out window: on or after day 14 and on or before day 56 of starting the job. Outside that window you stay in.

Joining on purpose is different from being automatically enrolled. If you opted in yourself, through your employer or by signing up with a provider directly, you cannot then opt out. People who are self-employed, not working, or under 18 join by contacting a provider directly.

Where does your KiwiSaver money actually go?

It goes from your pay to Inland Revenue with the rest of your employer's payroll deductions, and Inland Revenue passes it on to your provider, who invests it. Your employer does not send it to your provider directly.

That route is why KiwiSaver does not behave like a bank account. Inland Revenue says it can take up to a month from the day your employer deducts a contribution for it to appear in your account, and contributions do not always arrive as one single payment.

Once the money reaches your provider it is invested, not held as cash. That is what makes the balance move up and down on its own, separately from anything you or your employer put in.

What is a KiwiSaver fund, and what do the fund types mean?

A fund is the particular investment mix your provider puts your money into. Every provider offers several, and you are in one of them whether or not you ever chose it.

Funds are grouped into five types by how much of the fund is held in growth assets, which mainly means shares and property, as opposed to income assets like cash and bonds. Sorted, the Retirement Commission's service, defines the bands as follows.

The categories exist because the types behave differently: the more growth assets a fund holds, the more its value tends to move up and down along the way. The category definitions are built around how long the money is expected to stay invested. Which fund is right for any individual is regulated financial advice, so Paagaa does not suggest one. A licensed financial adviser can go through it with you, and the Retirement Commission's free fund finder is a neutral starting point.

• Defensive: 0% to 9.9% growth assets
• Conservative: 10% to 34.9% growth assets
• Balanced: 35% to 62.9% growth assets
• Growth: 63% to 89.9% growth assets
• Aggressive: 90% to 100% growth assets

When can you take your KiwiSaver money out?

The normal age is 65. Inland Revenue puts it plainly: you are eligible to withdraw all your KiwiSaver savings when you reach the age of eligibility, currently 65. Until then the money is locked in, which is the trade-off for the employer and government money that goes with it.

There are a small number of earlier exits, each with its own rules and its own application: buying a first home, significant financial hardship, serious illness, and permanently moving overseas. A first-home withdrawal is the most commonly used of these.

At 65 you can keep contributing if you want to, but two things change. Your employer is no longer required to contribute, and you are no longer eligible for the yearly government contribution.

How do you find out who your KiwiSaver provider is?

Log in to myIR and look under the KiwiSaver section. Inland Revenue lists your provider there, along with their contact details. This is the answer for anyone who was auto-enrolled years ago and has never heard from anybody since.

If you were automatically enrolled and never chose a scheme, Inland Revenue allocated you to one of its default schemes or to your employer's chosen scheme. That is how most people end up with a provider they do not remember picking.

Your provider, not Inland Revenue, holds your balance, your investment returns, and any contributions you paid straight to them. You can change provider at any time, but you can only belong to one at a time.

Who is allowed to advise you about your KiwiSaver?

Inland Revenue and your employer cannot give you financial advice, and both say so directly. KiwiSaver providers can, and so can licensed financial advisers, who are regulated by the Financial Markets Authority.

Paagaa is not a licensed financial advice provider either. These guides explain how the rules work so the words on your statement stop being a mystery. Anything that comes down to a decision about your own money is a conversation for a licensed adviser or a financial mentor.