This article was published on 15 December 2009. Some information may be out of date.

Do KiwiSaver — but not to the max

At a recent KiwiSaver seminar I was surprised to find that many employee members were still contributing 4 per cent of their pay, rather than the 2 per cent permissible since April 1 this year. And an AMP survey confirms that is not unusual. “Few have reduced their contribution, though indicating in February they intended to,” says AMP.

While KiwiSaver is a really good deal, for many people it’s best to contribute only as much as you need to receive the maximum contributions from the government and your employer. That means if you are:

  • An employee earning more than $52,150 a year, contribute 2 per cent. You will be putting in more than $1043 a year and so you’ll get the maximum tax credit.
  • An employee earning between $26,075 and $52,150, contribute 2 per cent but also top up your contributions to $1,043, so that you receive the maximum tax credit.
  • An employee earning less than $26,075, contribute 4 per cent but also top up your contributions to $1,043 to get the maximum tax credit.
  • Not an employee, contribute $1043 a year.

Note that in all cases the maximum tax credit in your first year in KiwiSaver will be less than $1043. It will be proportionate to how much of the July-June year you are a member.

Why is it usually best to contribute at a lower level? If you have high interest debt, you’re clearly better off putting any further savings into repaying that debt. And if you have a mortgage, the same applies in most situations — getting rid of the mortgage faster will beat adding to your KiwiSaver account.

Even if you have no debt, you’re generally better off making further savings outside KiwiSaver, where you have ready access to the money. Sure, you can take out at least some KiwiSaver savings if you are in big financial trouble, seriously ill, buy a first home or go overseas. But what if you or a family member starts a business, or you want to take time off work for education or child raising, or you want to help out friends or family members?

There are counter arguments. If you would squander the money if it weren’t tied up in KiwiSaver, by all means keep contributing 4 per cent of pay. Or you might like the simplicity and “painlessness” of KiwiSaver and not want to bother with setting up other savings. Or you might have enough other savings for any pre-retirement needs.

For most people, though, it works well to save just enough in KiwiSaver to get all the incentives.

To change your contributions from 4 per cent to 2 per cent of your pay, simply tell your employer. To make top ups, send the money directly to your provider — either regularly or in a lump sum.


The Capital Market Development Taskforce’s report — which will include lots of recommendations that would help ordinary investors — will be online from Wednesday December 16. The easiest way to find the report and summary will be to do a search on “Capital Market Development Taskforce” and click on Taskforce Papers.

Winners of the draw to attend the Taskforce’s breakfast in Wellington on Wednesday December 16 are: Peter Beaumont, Margaret Butler, Jo Campbell, Ruth Harrison, David Harvey, Barbara Kent, Kaye McCarthy, Janet Milne, Don Ross and Jan Scown,

Winners of the draw to attend the Taskforce’s lunch in Auckland on the same day are: Brett Austin, Bruce Blomfield, Annie Murray, Gordon Read, Mark Rowley, John Sandford, Mike Shepherd, Gordon Sims, Grant Smith and Derek Tan.

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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.