KiwiSaver: What is the best type of fund for you?


Since KiwiSaver launched 10 years ago, 2.7 million New Zealanders have signed up as members.

The initiative provides Kiwis with a simple means to save for the time they spend in retirement – those years when you don’t want to work as hard (or at all), but still afford the things you want and be able to spend your time doing whatever takes your fancy.

Given everyone’s financial situation and capability is different, your experience with KiwiSaver will be unique. It will depend on how much commitment you put into making decisions such as:

•. how much you contribute 

•. what type of KiwiSaver fund you choose, and 

•. which provider you invest with. 

After all, you can take your pick from more than 220 KiwiSaver funds being offered by the 25 scheme providers. They’re all different. 

If you didn’t make a choice, you’re not alone. Around 550,000 Kiwis have savings invested in one of nine so-called ‘default’ funds, chosen at random. If you don’t like how your fund is going, you’re able to transfer to another scheme at any time.

Most of us will be able to withdraw our KiwiSaver savings when we get to the age of NZ Super eligibility (currently 65). Under today’s rules, you’ll be able to withdraw your savings balance as one single lump sum. 

The obvious question here is – how do you ensure that the lump sum is the biggest it can be by the time you get to withdraw it? As much as everyone’s situation is different, there are some universal truths that you should be aware of, when it comes to savings and investments. 


The sooner you start contributing to your KiwiSaver account, the larger your savings balance will be at retirement. All other things being equal, if you started contributing when you were 25 you’d have about $245,000* more to retire with than if you waited till 35.


The more you contribute, the greater your savings balance will be. Again, all other things being equal, a 30-year old will have about $285,000* more to retire with if they contribute 8 per cent of their salary rather than the minimum 3 per cent. 


The fees you pay are a significant drag on your savings balance. Here’s why. In a KiwiSaver fund, your money is invested in a variety of financial assets, for example shares. The value of these assets moves up and down over time. Because the fund owns those assets, the value of the fund (and hence your balance) follows in step. 

In some years, your fund may make losses, and in others make gains. Fees are paid out of your account regardless of whether your balance is going up or down. As long as you’re invested in the fund, the only constant is the fees you pay. 

The amount of fees you pay over the years accumulates to a pretty large amount.

A caveat here – this doesn’t mean you should look for the cheapest fund. Look for funds that are value for money. Remember, if you ask for cheap you might end up getting exactly that. It is very important to understand the quality of your managers, their processes, philosophy, and the assets they have invested in.

Points to consider

Your wealth in retirement will depend not only on your KiwiSaver balance but all the other assets you build up over your working years and all the debts you have (hopefully none by this stage). So, when it comes to making decisions about KiwiSaver, you should take the rest of your financial affairs into account as well. 

This is why choosing to transfer your KiwiSaver savings to another provider simply because that provider suggested you sign a form agreeing to it might not work out that well for you. You owe it to yourself to be smarter than that. 

While your personal circumstances are a critical factor when making decisions about KiwiSaver, some general observations can be made for certain stages in your life: 

•. It’s never about how old or young you are. What is important to consider is how far away you are from needing to withdraw the money (whether it be at retirement at 65, or for a first-home purchase at 25).

•. How much you’re able to contribute should depend on how much you can afford and what other investment options you have, as well as your overall financial status. No size fits all. 

•. A change from a 3 per cent contribution to an 8 per cent contribution may make a substantial difference to your retirement balance. But remember, money that is invested in a KiwiSaver fund may not be accessible till you get to retirement age. 

•. There is an associated ‘opportunity cost’ with KiwiSaver, in that you might be better off putting that additional contribution into another investment option.

•. KiwiSaver funds invest in a range of assets, which may broadly be categorised into ‘income’ type assets (such as term deposits and bonds) and ‘growth’ type assets (such as shares of companies). Typically, funds with a higher proportion of growth assets charge higher fees. 

•. Starting to save sooner adds significantly to your final outcome, but remember that the fees and costs charged to you also accumulate. The longer you are invested, the greater the dollar amount of fees you pay over time.

* On a static annual income of $60,000, contributing 3 per cent and with a current balance of $15,000 in a fund that earns 5 per cent per annum.



0-18 Years

KiwiSaver has some great features. It’s not limited just to the working population. Parents can freely sign up their kids for a KiwiSaver account. Just $20 a week deposited in their account could amount to about $30,000 by the time they turn 18, in a fund that earns 5 per cent a year. Young people can then use another feature of KiwiSaver that allows them to withdraw their balance to buy their first home. 

From 18, if they’re in paid employment, they’ll be eligible for the government rebate of up to $521 every year, plus have their employer contribute at least 3 per cent of their earnings. 

Young people who have no intention of withdrawing their balance to buy a first home have many years until retirement to accumulate funds. They can afford to be in riskier funds whose performance may vary widely from year to year, but with the potential to produce higher returns over the long term. Most Growth or Aggressive funds fit into this category.

18-35 Years

You still have the benefit of time. At the age of 20, you have another 45 years of saving before you can access your money (assuming you don’t need to withdraw it earlier).

There are two forces at play in this stage. One, this is the time in life when you start accumulating assets, such as a car or a home, and establishing your life. Second, your sources of income are fewer and the amount you earn is typically lower than that of more mature workers because you’ve only just started to establish your career. 

Typically, this is when you first start feeling the taste of debt, as your asset accumulation is most likely made possible with borrowed money. With a lower income stream, servicing the debt can be challenging.

Under the circumstances, it may be painful to put aside money into your KiwiSaver account as well. But this largely depends on how much you earn and your lifestyle. If things get tight, you can always use another feature of KiwiSaver that allows you to take a contribution ‘holiday’ for up to five years, after which you can resume your contributions.

But before you rush into taking a break from contributions, remember this: a 30-year-old could miss out on close to $100,000* as a result of taking a five-year contribution holiday.

* On a static annual income of $60,000, contributing 3 per cent and with a current balance of $15,000 in a fund that earns 5 per cent per annum.

35-55 Years

This stage in life is defined by the years you’re likely to be earning the most income. 

At these levels of income, you’re far better placed to pay down that debt you took on in previous years, plan towards funding your kids’ education, contribute bigger amounts into your KiwiSaver account, expand your investment portfolio (into shares, rental property, and so on), and even invest in the services of a professional financial adviser to help manage your affairs.

Given you still have another 10–30 years until retirement, there’s still scope to be less conservative in your KiwiSaver fund choice. You can consider a range of Aggressive, Growth or Balanced funds. Your choice should depend on which end of the age range you are at and your own attitude to risk.

The assets that KiwiSaver funds typically invest into can broadly be split into ‘income’ type (such as term deposits and bonds), or ‘growth’ type (such as shares of companies). Income-type assets tend to provide more predictable returns, while growth-type assets tend to provide higher, yet less predictable, returns over time. The choice comes down to how much uncertainty of returns you can take versus how much return you want to get. 

Aggressive funds will have almost all their investments in growth assets. At the other end of the spectrum, Conservative funds will have most funds invested in income-type assets.

55+ Years

As you get closer to retirement, you may continue to expand your asset accumulation, with a steady income that is likely to fall in the near future.

The more you are exposed to growth assets through your KiwiSaver fund, the greater the likelihood that your returns are less predictable. So, it may make sense to transition into more conservative funds. Most Conservative, Capital Stable and Moderate funds fit into this category.

Having said that, the above should not be used as a golden rule. Now you’re close to retirement age, it makes sense to start getting more conservative with your investment choices. But before you rush into switching into Conservative KiwiSaver funds, consider this – it’s highly likely that you’ll need to fund yourself for more than 30 years in retirement. 

The eligibility age of 65 is simply an artificial goalpost and should not be confused with your ‘real’ investment timeframe. For instance, should you live to the age of 95, you must ensure that all your assets and potential income streams can help you pay your bills and fund your lifestyle for that long. Remember, if you’re not working, you’re largely dependent on the income your assets can generate.

First published 15 August, 2017

By Binu Paul

This article is for education and informational purposes only, without any express or implied warranty of any kind, including fitness for any particular purpose. The information contained in or provided from or through this article is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.

Any views expressed are wholly personal and not a reflection of any of the entities associated with the author. It is general in nature and as such will not be specific to you or anyone else. Please consult with a qualified financial adviser before making financial decisions.

The editorial below reflects the views of the editorial contributor only and content may be out of date. This article is sourced from a previous JUNO issue. JUNO’s content comes from sources that it considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.


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