10 Common KiwiSaver Mistakes — Considerations for Members
Common patterns that researchers and Sorted have highlighted as costing KiwiSaver members material long-term value. This guide explains the mechanics qualitatively — it is not personalised financial advice. Consult a licensed financial adviser before changing your KiwiSaver scheme settings.
Illustrative content only. FundCompare is not a Financial Advice Provider. Worked examples below are illustrative — actual outcomes depend on your specific scheme, fund, contributions, market returns and tax position. Source data: FMA Disclose and IRD KiwiSaver.
1. Staying in the Default Fund
High CostThe Mistake: When auto-enrolled into a KiwiSaver scheme, members are placed in a balanced default fund. For younger members with decades to retirement, a fund with a higher growth-asset allocation may better match the long time horizon — but only if it suits the member's risk tolerance and goals.
The Mechanics:
Over multi-decade periods, growth funds have historically generated higher returns than conservative funds, though with greater short-term volatility. Sample (illustrative): the compounding gap between a hypothetical conservative-fund return and a hypothetical growth-fund return can be six-figure over 30+ years. The actual gap depends entirely on real returns, fees, and contributions.
The Fix:
Review your fund-type choice in light of your time horizon and goals. A licensed financial adviser can help confirm what fund category fits your situation. To compare funds across categories see growth funds, balanced funds, and conservative funds.
2. Ignoring Fees
High CostThe Mistake: Treating a 1% fee as negligible without modelling how it compounds over decades. Many members never check their annual fund charges.
The Mechanics:
Fees compound — each year's fee reduces both the principal and the growth on that principal. Over 30+ years, even sub-1-percentage-point differences in total annual fund charges can translate to materially lower final balances. The exact figure depends on your balance, contributions, return assumptions and time horizon.
The Fix:
Read your annual fund-update statement for "total annual fund charges" (TAFC). Compare the TAFC to category peers using FMA Disclose data. Use our fees-impact calculator → to model the compounding effect on your own balance.
3. Contributing Only the Statutory Minimum
Medium CostThe Mistake: Staying at the 3% statutory minimum contribution rate (the floor required to receive the matching employer contribution). Statutory minimums are designed as floors, not as savings targets.
The Mechanics:
Higher contribution rates (4%, 6%, 8%, 10%) compound through the same fee/return engine but on a larger base. The IRD-allowed contribution rates are 3%, 4%, 6%, 8% and 10%. Modelling your projected retirement income at each rate is an exercise the Sorted retirement calculator handles well.
The Fix:
Check your current contribution rate on your payslip. If your budget allows, ask your employer (via myIR) to move you to a higher rate. Many members find ratcheting up by 1 percentage point per year is more sustainable than a single jump.
4. Never Reviewing Your Fund
High CostThe Mistake: Setting up a KiwiSaver account once and never reviewing fees, performance, or fund type as your life circumstances change.
The Mechanics:
Provider offerings change, new schemes launch, and your own life stage (years to retirement, risk tolerance, first-home plans) evolves. A fund that suited you at 25 may not suit you at 55.
The Fix:
Set an annual calendar reminder to review your account. Check fees, performance vs peers, and whether your fund type still matches your time horizon. Compare providers annually →
5. Wrong PIR Tax Rate
Medium CostThe Mistake: Not updating your Prescribed Investor Rate (PIR) when your income changes. The valid PIR rates published by IRD are 10.5%, 17.5% and 28%. The correct PIR depends on your taxable income over the prior two tax years.
The Mechanics:
PIR is the tax rate applied to your KiwiSaver scheme's investment earnings under the Portfolio Investment Entity (PIE) regime. Being on a PIR that is too high means overpaying tax on investment gains; being on a PIR that is too low means IRD may charge the shortfall at year-end. Source: IRD — find my PIR.
The Fix:
Use IRD's PIR finder once a year (linked above). Notify your provider of any change. From the 2020-21 tax year onwards IRD also recalculates your PIR automatically and notifies your provider if it has changed.
6. Panic Selling During Market Downturns
Variable CostThe Mistake: Switching from a growth fund to a conservative fund mid-downturn to "stop the bleeding." Switching after a drawdown locks in the paper losses as realised losses and removes the member from the subsequent recovery.
The Mechanics:
Growth funds experience higher short-term volatility than conservative funds. Historically, NZ and global equity markets have recovered from major drawdowns (GFC 2008, COVID-19 March 2020) over multi-year periods. Past recovery patterns are not a guarantee of future recoveries — and a member close to retirement has a shorter recovery window than a younger member.
The Fix:
Make fund-type decisions based on your time horizon and risk tolerance, not on short-term market noise. If you are within 5 years of retirement or a first-home withdrawal, consult a licensed financial adviser about whether your current fund category still suits the timeframe.
7. Not Maximizing Member Tax Credit
High CostThe Mistake: Not contributing enough each KiwiSaver year (1 July – 30 June) to receive the maximum government Member Tax Credit. IRD pays 50 cents per dollar contributed up to an annual cap.
The Mechanics:
The maximum government MTC is $521.43 per KiwiSaver year, which requires personal contributions of $1,042.86 over the same year. The MTC compounds inside your fund alongside member and employer contributions. Source: IRD — government contributions.
The Fix:
If you are employed and contributing 3% on at least $35,000 salary, you already exceed the threshold. If you are self-employed, on parental leave, or otherwise not contributing through PAYE, set up an automatic payment to your provider sufficient to reach $1,042.86 each KiwiSaver year before 30 June.
8. Not Understanding First Home Withdrawal Rules
Medium CostThe Mistake: Planning to use KiwiSaver toward a first home without understanding the eligibility rules: 3-year minimum scheme membership, intention to live in the property for at least 6 months, the $1,000 government kick-start (where applicable) cannot be withdrawn.
The Mechanics:
The KiwiSaver First Home Withdrawal lets you withdraw your accumulated balance (minus the kick-start where applicable and a $1,000 statutory minimum). The separate Kāinga Ora First Home Grant was discontinued 22 May 2024 (Budget 2024); the surviving Kāinga Ora support is the First Home Loan for 5%-deposit eligible buyers. Source: Kāinga Ora.
The Fix:
Research eligibility early — confirm you meet the 3-year KiwiSaver membership minimum. If you need a low-deposit path, also check Kāinga Ora First Home Loan eligibility (income + house-price caps apply by region). After buying, review your contribution rate and fund type to rebuild for retirement.
9. Taking a Savings Suspension and Forgetting to Restart
Variable CostThe Mistake: Taking a savings suspension (formerly "contributions holiday") for legitimate financial-hardship reasons but forgetting to restart. Years pass without contributions while members assume they are still saving.
The Mechanics:
During a savings suspension, your contributions stop (and your employer's matching contributions stop with them, and you stop receiving the Member Tax Credit on the missed period). The forgone amount compounds inside the scheme over the rest of your career.
The Fix:
Set a calendar reminder for the end of your savings suspension. Check your payslip monthly after the restart to confirm employee and employer contributions are flowing again.
10. Having Multiple KiwiSaver Accounts
High CostThe Mistake: Accidentally opening multiple KiwiSaver accounts and not consolidating them. Each account pays its own administration and fund charges, and small balances often attract proportionately higher fixed-fee impact.
The Mechanics:
A KiwiSaver member can only contribute to one scheme at a time, but if accounts were opened separately (e.g. as a child via the kick-start era, then auto-enrolled later in life) both may still exist on the IRD register with separate balances. Consolidating into one scheme stops duplicate-fee leakage.
The Fix:
Log into myIR or contact IRD to check whether you have multiple KiwiSaver accounts on the register. Choose your preferred scheme and transfer the others into it (the receiving provider handles the paperwork).
Reviewing Your Settings
Members who address several of these patterns at once typically see a material long-term improvement in their projected retirement position. Each item below is a mechanical setting you can review — not a recommendation to act on without your own analysis.
Self-Review Checklist:
For personalised guidance, consult a licensed financial adviser. FundCompare publishes scheme + fund data sourced from FMA Disclose; it does not provide financial advice.
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