Should I increase my KiwiSaver contribution rate?

Whether you’re employed or self-employed, the amount you contribute could have a major impact on your savings, and ultimately, the lifestyle you’ll enjoy in retirement.

How KiwiSaver contributions work

KiwiSaver contributions are automatically deducted from your salary if you’re an employee. You can choose to contribute at a rate of 3%, 4%, 6%, 8%, or 10% of your gross income. In addition to your own contributions, your employer must contribute at least 3%, and you’re also eligible for a government contribution of 50 cents for every dollar you contribute – up to $521.43 per year between July 1 and June 30.

If you’re self-employed and not using the PAYE system, you’ll need to make voluntary contributions. Setting up regular automatic payments can help ensure consistency and prevent the temptation to spend the money elsewhere.

If you’re self-employed and use the PAYE system, you’ll make both the employee and employer contributions. After 12 months of KiwiSaver membership, you can opt for a savings suspension, which allows you to make voluntary contributions instead. If you’re self-employed, you’ll also receive the government contribution of 50 cents for every dollar you contribute – up to $521.43 per year between July 1 and June 30.

How different contribution rates impact your savings

Your contribution rate has a long-term impact on how much you’ll save. Sorted NZ highlights that the difference between contributing 3% and 10% of your salary could mean an additional $229,000 for someone on an average salary over their working life.

For example, if you earn $80,000 annually and contribute 3%, Sorted NZ estimates you could have about $198,555 saved after 30 years in a balanced fund. If you increase that to 8%, your savings could rise to $378,616. You can explore how different rates affect your savings using the KiwiSaver calculator on the Enva website.

How much will you need for retirement? 

To decide how much you should contribute, it’s important to consider your retirement needs. A recent study by Massey University’s New Zealand Retirement Expenditure Guidelines found that, assuming a life expectancy of 90, you’d need $197,000 saved for a “no frills” retirement and $831,000 for a “choices” retirement in a major city. And that’s on top of the current pension payments.

Think about how an extra $50,000 or $100,000 could improve your retirement. Could it fund more holidays, home renovations, or simply offer greater comfort? Even small increases to your KiwiSaver contributions could make a significant difference to your future lifestyle.

Is it time to increase your contributions? 

Whether you should increase your KiwiSaver contributions depends on your personal financial situation. If your budget is tight, you may not be able to increase contributions right now. However, if you find yourself with more disposable income, perhaps following the 2024 tax cuts, this could be a good time to increase your contributions and grow your retirement savings.

How to change your KiwiSaver contribution rate

If you decide to adjust your KiwiSaver contribution rate, here’s how you can do it:

• Employed? Contact your employer to change your rate.
• Self-employed or not working? Reach out to your KiwiSaver provider to adjust your contributions.

If you’re unsure about the best contribution rate for your situation, speaking with an Enva Financial Adviser can be a great next step. We can help you create a plan to achieve your retirement goals.