Your KiwiSaver portfolio isn't built on contributions alone

National's proposal to gradually increase default KiwiSaver contributions to 6% from employees and 6% from employers by 2032 has reignited an important conversation about retirement savings.

If implemented, the combined contribution rate would eventually reach 12%, bringing New Zealand closer to Australia's compulsory superannuation system.

On the surface, the idea seems straightforward. Save more during your working life and you'll have more in retirement.

That's true. But it's only part of the story.

Building long-term wealth has never depended on just one number. It comes down to three things working together: how much you save, how long you stay invested and the decisions you make along the way.

The proposed increase tackles the first of these. The other two are just as important.

 

Why higher contributions matter

Many New Zealanders are starting to understand that KiwiSaver is one of the most reliable ways to build wealth over time.The principle is surprisingly simple. Every contribution buys investments that have the opportunity to grow. Those returns can then generate returns of their own. Over decades, this process, known as compounding, becomes one of the most powerful forces in investing.

The earlier money is invested and the longer it remains there, the greater the opportunity for that growth to build upon itself. That is why seemingly modest increases in contribution rates can make such a meaningful difference over a working lifetime.

It's also why Australia's experience is often held up as an example. Since compulsory superannuation began in 1992, contribution rates have gradually increased from 3% to today's 12%, helping build one of the world's largest retirement savings systems.

The lesson isn't simply that Australians save more. It's that consistent saving over long periods gives compounding the time it needs to do the heavy lifting.

 

Saving is only one side of the equation

Imagine two people who contribute exactly the same amount to KiwiSaver over 35 years. They won’t necessarily retire with the same balance.

Why?

Because how their money was invested and whether that investment strategy suited their goals and timeframe matters.

Many KiwiSaver investors understandably focus on how much they’re contributing but spend far less time considering whether they’re in the most appropriate fund. Remaining in a fund that is too conservative for your circumstances for example, may feel comfortable in the short term but can come at a significant cost over several decades.

This is where advice can make a meaningful difference.
A good adviser doesn't simply recommend a fund. They help ensure your investment strategy reflects your goals, your tolerance for market ups and downs and the time you have until retirement. As your circumstances change, your strategy can change with you.

 

The decisions that matter most

Perhaps the biggest surprise in investing is that long-term success if often determined less by markets than by behaviour.

Market downturns can tempt investors to switch funds after prices have already fallen. Economic uncertainty can encourage people to decrease contributions or become overly cautious.

These decisions are understandable. They’re also among the most common reasons investors fall short of the returns markets have delivered.

Remaining invested through periods of volatility, continuing to contribute regularly and staying focused on long-term goals are often far more valuable than reacting to short-term headlines.

Advice can help provide the confidence and perspective to stay the course when markets inevitably become uncertain.

 

A stronger retirement is built overtime

Whether or not New Zealand eventually moves to a combined 12% KiwiSaver contribution rate, the broader message remains the same.

Saving more is a positive step. Starting early is even better.
But retirement outcomes aren’t determined by contribution rates alone. They’re shaped by disciplined saving, thoughtful investment decisions and having a strategy that’s appropriate for your circumstances.

Higher contributions can provide more fuel for the journey.
Good advice helps ensure you’re travelling in the right direction.

For Evidential KiwiSaver Scheme members, those two things working together may prove far more powerful than either one on its own.

 

The information contained in this article is intended to be of a general nature. It does not take into account the objectives, financial situation or needs of any particular person, and does not constitute financial advice. Consilium NZ Limited is the issuer of the Evidential KiwiSaver Scheme. For more information on Evidential KiwiSaver Scheme including a copy of the Product Disclosure Statement, visit www.evidential.co.nz