18 May 2022
It’s the time of year when KiwiSaver providers are delivering their Annual Member Statements.
This is a great time to do a KiwiSaver health check to ensure you’re on track to achieving your goals. In this article we’ll provide our top tips to conduct your own KiwiSaver health check.
Are you on the correct tax rate?
Your KiwiSaver provider invests contributions on your behalf. You pay tax on the money your investment earns (Inland Revenue, 2022).
If your KiwiSaver scheme is a widely-held superannuation fund, your investment earnings are taxed at 28% (Inland Revenue, 2022).
If your KiwiSaver scheme is a Portfolio Investment Entity (PIE) fund, tax is deducted from your investment based on your Prescribed Investor Rate (PIR).
Your PIR is based on your annual income over two years. If you’ve had a change in circumstances where your total income has gone up or down, you will need to assess whether your PIR is correct.
Your Annual Member Statement will show the PIR that has been used in that reporting period. To check if you are on the right PIR use the IRD tool Find my PIR.
If your PIR has changed you’ll need to let your KiwiSaver provider know. The IRD will send a letter advising you if you’re on the wrong rate, they’ll also tell your provider which rate is correct for you. However, it is still your responsibility to notify your provider.
Are you on track to achieve your goals?
Whichever way you plan to spend your KiwiSaver money, you need to ensure that the contributions you’re making will help you achieve your financial goals.
What contribution rate are you on? If you’re unsure, ask your employer as they make deductions each time you are paid. If you want to change your contribution rate you can choose from 3%, 4%, 6%, 8% or 10%. There are a number of ways to change your contribution rate:
- Give written notification to your employer by email or letter. Alternatively, you can complete a KS2 form, available for download from IRD, simply complete and give it to your employer;
- Through the Inland Revenue portal ‘MyIR’. Once you have setup your portal, login and select the ‘more’ menu of your KiwiSaver account and click ‘Change KiwiSaver Contribution Rate’. Simply complete the form and submit.
- Contact your KiwiSaver provider who can also change your contribution rate. For more information go to the IRD website Change my KiwiSaver contribution rate.
You can also make voluntary lump sum contributions if you want to.
Are you contributing enough to receive free Government money?
Each year the Government will contribute up to $521.43 towards your KiwiSaver fund. Anyone who is contributing to their KiwiSaver is eligible to receive this money. All you need to do is make at least $1042.86 of your own contributions between 1 July and 30 June each year. If you join KiwiSaver or turn 18 partway through the year, your Government Contribution will be pro-rated.
Login to your KiwiSaver member portal, review the contributions that you’ve made to your fund (this doesn’t include employer contributions) to see if you’ve contributed enough. If you haven’t quite made the minimum of $1042.86, you can make a voluntary contribution. You can find deposit details for your KiwiSaver fund in your member portal. Alternatively, contact your KiwiSaver provider, and they can give you this information.
Are you in the right fund?
Choosing the right fund considers two key factors: the length of time you want to be invested in order to achieve your goals, and the level of comfort you have when your balance goes up and down.
If you’re in the wrong fund type, you may be missing out on investment returns. Or, if you’re in a fund that focuses on long-term growth, you may not have enough time to recover from market dips if you plan on using your money within a shorter period of time.
Funds can vary across providers, but generally, there are three main types:
- Conservative – These funds aim to preserve your savings and contain more income assets, like bonds, fixed interest and other cash-like products. There are fewer growth assets, like shares, in this fund. Conservative funds, generally, have an allocation of 30% to growth assets and 70% to income assets. Your investment timeframe for this fund would be short-term, one to five years, and will suit investors that will use their funds in the near future, for retirement or their first home. You’ll generally experience fewer ups and downs in a Conservative fund and less capital growth than you would in a Balanced or Growth fund.
- Balanced – These funds aim for steady and balanced growth. They will generally have an allocation of around 60% to growth assets and 40% to income assets. The investment timeframe for this fund is between five and ten years.
- Growth – These funds aim to maximise opportunities to grow your money. Growth funds have a higher allocation to growth assets of 80% and 20% to income assets. You will experience more ups and downs with this fund and it is more suited to investors with a timeframe of more than ten years. This gives the fund time to recover from lows experienced in the market and over a long time period, generally, investors will see a higher return.
Your Financial Adviser can help you determine your appetite for risk. Sometimes this may change, depending on your circumstances. You may also like to use the Sorted KiwiSaver Fund Finder which does a quick assessment of your risk appetite and goals, and picks funds that may be suited to you.
It’s really important to conduct a KiwiSaver health check once a year and a great time to do this is when you receive your Annual Member Statement. A health check will ensure you’re on the right track to achieving your financial goals by being:
- on the right PIR;
- making contributions that are right for you;
- contributing enough to receive the free Government money; and
- in the right fund for your timeframe and appetite for risk.
If you need help conducting your KiwiSaver health check or would like an assessment on your overall investment strategy, get in touch with your Financial Adviser.
Information as at 18 May 2022. This article is general information and does not consider your financial situation or goals and does not constitute personalised advice. Please contact your financial adviser for advice specific to your situation. There are no warranties, expressed or implied, regarding the accuracy or completeness of any information included as part of this article.
Financial Markets Authority. (2022). Superannuation schemes.FMA: https://www.fma.govt.nz/investors/kiwisaverandsuperannuation/superannuation-schemes/
Inland Revenue. (2022). Getting the KiwiSaver government contribution. ird.govt.nz: https://www.ird.govt.nz/kiwisaver/kiwisaver-individuals/growing-my-kiwisaver/getting-the-kiwisaver-government-contribution
Inland Revenue. (2022). How your KiwiSaver is taxed. ird.govt.nz: https://www.ird.govt.nz/kiwisaver/kiwisaver-individuals/taxing-kiwisaver-income
Inland Revenue. (2022). Investment income reporting. ird.govt.nz: https://www.ird.govt.nz/income-tax/withholding-taxes/resident-withholding-tax-rwt/payers/investment-income-reporting
Inland Revenue. (2022). Portfolio investment entities that attribute income – reporting requirements. ird.govt.nz: https://www.ird.govt.nz/income-tax/withholding-taxes/resident-withholding-tax-rwt/payers/investment-income-reporting/reporting-requirements/pies-attributing-income
Inland Revenue. (2022). Change my KiwiSaver contribution rate. ird.govt.nz: https://www.ird.govt.nz/kiwisaver/kiwisaver-individuals/making-changes-to-my-kiwisaver/changing-my-kiwisaver-contribution-rate/change-my-kiwisaver-contribution-rate
Inland Revenue. (2022). Portfolio Investment Entity – A guide for PIEs. ird.govt.nz: https://www.ird.govt.nz/-/media/project/ir/home/documents/forms-and-guides/ir800—ir899/ir860/ir860-