Having more of your hard-earned money going into your KiwiSaver portfolio can only be a good thing, right? Well, not always.


KiwiSaver members have the option of contributing 3%, 4%, 6%, 8%, or 10% of their pay directly into KiwiSaver. The default rate is 3% if you don’t choose a higher rate and contribution rates can be changed every 3 months.

If you have recently changed jobs or if you found yourself with spare cash, you might be wondering whether increasing your contributions is a good idea. By increasing your contribution rate, you can add thousands to your KiwiSaver account balance, so it is worth considering this option.

Here are some things to look at before making any changes.

Think long-term.

KiwiSaver is a great savings tool, but it was designed for retirement saving. Any money you put in is locked in until age 65 (except if you fall into hardship, emigrate, or die). So, while it is great to make use of KiwiSaver as a simple way of growing your retirement nest egg, you need to consider whether you will need to access your funds before age 65. If the answer is yes, then other options might be better suited for you.


Are your bases covered?

Before increasing your contributions, make sure you have an emergency fund. When putting together a financial plan for our clients, looking at all the pieces of their financial health puzzle, we recommend that they have an emergency fund consisting of 3 months’ worth of expenses. Your emergency fund is for things like unexpected expenses, being unable to work, medical bills, car breakdowns, etc. Your emergency fund should work in conjunction with your personal insurance. The emergency fund needs to be easily accessible, which is not the case if you put your spare cash into your KiwiSaver fund. To have your money easily accessible, you might need to look outside KiwiSaver.

Get rid of dumb debt first.

It is called dumb debt for a reason – this is when you are paying a very high interest rate that can be avoided. Some of the most common high-interest rate debts are credit cards, hire purchases, and personal loans. Dumb debt makes people worse off financially and the longer they take to pay it off – an important point sometimes lost on people – the more it will cost. Before even considering increasing your contributions, you may want to clear that debt off.

All this being said, there are two scenarios where it would often make sense to increase your contributions:

Buying your first home. If you plan on making use of your KiwiSaver funds to buy your first home, it makes sense to save up as much as you can. Spare cash? Transfer your money directly into KiwiSaver from your employer to grow your investment, avoiding the temptation of spending it.

Retiring. Again, if you are close to retirement, you have no debt, and you have paid down your mortgage, it makes sense to increase your contributions and continue to grow your retirement nest egg as much as you can.

While we have provided some general guidelines, we recommend you speak to one of our KiwiSaver specialists before making any changes. By talking to an Adviser, you can discuss your contribution rates but also make sure you are with the right provider and in the right fund, so your money is working hard for you.

Finally, don’t forget that now is the time to make sure you will receive the full Government Contribution into your KiwiSaver for this year.

PS: consider all options. While KiwiSaver is a straightforward way of investing, it has its limitations. If you have spare cash and you are not close to retirement (or buying your first home), consider other investment options, like managed portfolios. These portfolios can be tailor to suit your savings goals and your risk appetite. Contact us to find out more.