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Is your KiwiSaver contribution rate working for you?

30 Apr 2019 by  Milford Asset Management

There are two new contribution rates available for KiwiSaver investors. Previously, you could only contribute at 3%, 4% or 8% of your salary. But from 1 April 2019, you can now also choose to contribute at 6% or 10%. Plus you can still make voluntary contributions of any amount directly to your account.

So, with that many choices, what’s the right rate for you?

The government has legislated that 3% is the minimum contribution rate, therefore it’s the most common contribution rate. But saving 3% of your salary isn’t very much. Will it be enough to fund your retirement? In many cases, the answer is a resounding “no”.

Of course, the reason many of us don’t save more is because retirement still seems like a long way away, we have other priorities, or we simply can’t afford to. But imagine if you were able to make some small adjustments and managed to save just 1% more. How much would that mean for you in retirement?

Believe it or not, even a small change can make a big difference as you can see in the graph below.

Assumptions: 35 year-old KiwiSaver investor earning $50,000 gross salary, $20,000 starting KiwiSaver balance, 8% p.a. net investment return, 3% employer contributions, 2.5% p.a. wage growth and no withdrawals. Balances shown in today’s dollars, adjusting for assumed 2% p.a. inflation. Sourced from Milford Asset Management. Please note this is a hypothetical example and meant for illustrative purposes only. Past performance is not a guarantee of future performance.

It may be more affordable than you think


Although KiwiSaver is a great way to save, it’s important to remember that your KiwiSaver savings are locked-in until age 65.  There might be other options for you to consider. We recommend you seek advice from a financial adviser if necessary.  A financial adviser would take all your personal circumstances into consideration when advising on your investment and retirement savings.

How to change your contribution rate

If you do decide to increase your KiwiSaver contribution rate, the process is very simple. Just complete an Inland Revenue KS2 form, hand it to your employer and they will adjust your contribution rate – that’s it.

Either way, one thing is very clear – saving and investing a bit more now can help you create a much more comfortable retirement.

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to a financial adviser. Please note past performance is not a guarantee of future performance. Please read the Aon KiwiSaver Scheme product disclosure statement.

Milford Asset Management

Milford Funds Limited is an underlying investment managers that partners with Aon KiwiSaver Scheme. Milford Funds Limited is a 100% owned subsidiary of Milford Asset Management Limited.