Should You Contribute More than 3% to KiwiSaver

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With KiwiSaver, if you’re employed and contribute 3% of your earnings, your employer also has to contribute 3%. I’m often asked, should I contribute more than this.

First up, the reasons for contributing more than 3%:

  1. Your future self is unlikely to regret you contributing more in savings. By saving more, you will have a larger house deposit.
  2. It forces you to save. Because KiwiSaver comes out of your pay before it lands in your bank account, once you set it up, it just happens and generally you adjust to the pay that is in your bank account.

 

Secondly, the reasons against:

  1. There is no additional benefit – unless your employer contributes more, there is no added incentive to contribute more – you’re not going to get more money from your employer, no more government contribution, and unlike some other countries, we don’t have a tax break to save more.
  2. Your funds are locked in – once you put them in KiwiSaver, there are limited ways you can get it out, with the two most common being your First Home, or Retirement. It’s relatively straightforward to invest outside of KiwiSaver now, so you take the same money and do something similar with it that is flexible.

 

So what to do?

If you are someone that knows the funds will be spent if they hit your bank account, increasing your KiwiSaver contribution at least forces it to happen. If you are closer to having access to the funds then the flexibility consideration is less important – so if you are looking to buy your first home in the next couple of years, this might be a really good option as the money is forced savings and never hits your bank account.

If you’ve got relatively good self-discipline, you might want to consider investing the money elsewhere to take advantage of the flexibility of being able to access the money in case of emergency.