Maximising Your KiwiSaver Employer Contributions
KiwiSaver is one of the easiest ways for New Zealanders to save for retirement. While your own contributions help grow your savings understanding how to maximise your employer contributions can significantly boost your KiwiSaver balance. In this guide, we'll explain how employer contributions work, how you can maximise them, and why doing so is beneficial for your future.
What are KiwiSaver Employer Contributions?
If you're part of a KiwiSaver scheme and contributing through your salary your employer is required by law to contribute a minimum of 3% of your gross (before tax) salary into your KiwiSaver account. This employer contribution is essentially "free money" on top of your own savings, making it an incredibly valuable part of your retirement savings plan.
How Do Employer Contributions Work?
Every payday, your KiwiSaver contributions are deducted directly from your salary and sent to your KiwiSaver fund provider. Your employer then adds their contribution — usually at least 3% — to your KiwiSaver fund at the same time. Both your contribution and your employer’s contribution accumulate over time helping your KiwiSaver grow faster.
Why Maximising Employer Contributions Matters
Maximising your employer contributions is essentially receiving extra money from your employer towards your retirement savings. Simply put, it’s like receiving free money. Over time, these extra funds can significantly boost your retirement savings making a huge difference when you retire. Even small increases today can have a big impact on your savings down the road due to compound interest.
How to Maximise Your Employer Contributions
Step 1: Check Your Contribution Rate
Ensure you are enrolled in KiwiSaver and contributing at least 3% of your salary. If you’re currently contributing less, increasing your contribution to at least 3% ensures you're eligible for the full employer match.
Step 2: Understand Your Employer's Contribution Policy
Some employers voluntarily contribute more than the required minimum of 3%. Check with your HR department to find out if your employer offers higher contribution rates. Make sure you are taking advantage of this opportunity if available.
Step 3: Regularly Review Your Contributions
Regularly checking your KiwiSaver account ensures you’re receiving the correct employer contributions. Keep track of your payslips and KiwiSaver statements and address any discrepancies quickly with your employer.
Making the Most of Employer Contributions
Here are some additional ways to fully leverage employer contributions:
Increase Your Own Contributions: Although employers typically only match up to 3% increasing your personal contribution rate can significantly boost your overall KiwiSaver savings.
Salary Negotiations: When negotiating your salary or pay rise remember your KiwiSaver contributions are based on your gross salary. The higher your salary the greater your employer’s KiwiSaver contributions.
Understanding Your KiwiSaver Investment
KiwiSaver schemes invest your contributions in a variety of ways, depending on your selected fund type:
Conservative Funds: Lower risk, investing mainly in stable assets, offering steady but lower returns.
Balanced Funds: A mix of risk and return, suitable for moderate growth.
Growth Funds: Higher risk, potential for higher returns, investing mainly in shares and property.
Choosing the right KiwiSaver fund can significantly affect the growth of both your and your employer's contributions.
Common Mistakes to Avoid
Not Contributing Enough
Contributing below the minimum required percentage (3%) means missing out on full employer contributions. Always contribute at least the minimum to get the maximum employer benefit.
Ignoring Your KiwiSaver Fund Performance
Regularly review how your KiwiSaver fund is performing. A well-performing fund maximises the growth potential of both your and your employer's contributions.
Not Reviewing Your KiwiSaver Regularly
Regular reviews of your account and fund choices ensure you stay on track to reach your financial goals. Adjustments can be made easily if your financial circumstances or retirement goals change.
Extra Tips to Boost Your KiwiSaver
Increase Your Contribution: If your budget allows, increasing your contribution beyond the minimum 3% can significantly boost your savings.
Annual Government Contribution: Don't forget the annual government contribution of up to $521.43, which requires you to contribute at least $1,042.86 each year.
The Long-Term Impact of Employer Contributions
Maximising employer contributions can have a significant impact on your long-term financial health. For example, even small increases in contributions made early can grow substantially due to compound interest over many years. This can make a huge difference by the time you retire, providing greater financial security.
Making the most of your KiwiSaver employer contributions is one of the simplest yet most effective ways to boost your retirement savings. By understanding how these contributions work and regularly reviewing your KiwiSaver account, you ensure you're on track for a comfortable and financially secure retirement.