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Ep. 1: Where did KiwiSaver come from?

The Payoff

We chat with Girls That Invest founder Simran Kaur and Mary Holm about how KiwiSaver began, how it works, and what it offers everyday Kiwis today.

We also get personal with Simran about how she’s been able to set herself up for the future she wants—and provide you with practical tips so you can do the same.

Listen to the full episode

Catch the first episode of The Payoff below, or listen on Apple Podcasts, Spotify, Google Podcasts, or iHeart.

Simran Kaur

When it comes to KiwiSaver, it’s such an emotional connection to it. Like you think, oh if I admit that I need to focus on my KiwiSaver, I’m admitting that there’s going to be a stage in my life where I’m not going to have an income, I’m going to have to live off this money. 

It’s so overwhelming that you almost don’t want to think about it.

Brad Olsen

Put it this way, I have a lot of discussions with friends about a whole manner of things, but KiwiSaver and retirement is never one of them. No one ever brings it up as something I need to actively think about.

Mary Holm

There were quite a few criticisms of it at the beginning, but it took off like you wouldn't believe and it didn’t take very long at all for one million and then two million people to be in the scheme. Now there are over three million.

Georgia Burt

He was like, “What? You can use it for your first home?” And I was like, that’s the best part. It helps so many people get on the property market.

Brooke Roberts

Welcome to The Payoff, a six-part weekly podcast series where you’ll hear from everyday New Zealanders about their experiences and their dreams when it comes to putting money away for their future.

We’re talking KiwiSaver. 

Why do so many of us ignore it? Most of us would rather talk about anything else at a barbeque. 

Brad Olsen

No one ever brings it up as something I need to actively think about.

Brooke Roberts

Plus, we bust common myths.

Simran Kaur

I think people don’t realise the true benefit of it. It can make a huge difference, and just means there’s more choice in your life.

Brooke Roberts

And most importantly, why it’s a no-brainer to invest this way.

Brad Olsen

The government is going to give you $500 plus bucks free. Literally free.

Brooke Roberts

And your money grows without much effort at all.

Simran Kaur

If you knew the difference in life you could live by having KiwiSaver and not, I think we’d have a lot more conversations about it.

Brooke Roberts

Ko brooke toku ingoa. I’m Brooke Roberts, one of the co-founders and CEOs at Sharesies.

Even though I studied finance at university, when I started my first job there was no way I was having a bar of KiwiSaver. I wanted and needed all of the money I was earning. But it wasn’t until my boss sat me down and explained how it worked, that I realised its potential.

We’ll get more into that story later, but to kick us off, one of the first people I had to get on this series was someone who's super passionate about sharing her knowledge when it comes to investing: my mate Sim.

Simran Kaur

If there was something that you needed that was going to help you live for the next 30 years, would you not have a podcast about it? This is going to impact how I spend the last couple of decades of my life.

Brooke Roberts

Simran Kaur is 26, a TEDx speaker, a best-selling author, and the founder of the hugely popular podcast Girls That Invest.

Simran Kaur

I think the world I wanna see, and maybe this is an audacious goal, but that's how they start, is a world where everyone gets to say, if I'm in a situation that I don't wanna be in, I can walk away. 

And everyone has the ability to have what I call taxi money or the ability to go while I don't have to be stuck in this job, with this partner, in this household because I am financially able to choose the life I live and not be given a life that I am stuck in. 

And so that's where I find financial literacy and financial education and having financial means allow people to just go, oh, this is the authentic life I'm living.

Brooke Roberts

Love that from Sim! I want to come back and chat about how KiwiSaver fits into her vision. But let’s not get ahead of ourselves. Let’s have a quick chat about what KiwiSaver is all about.

Basically, KiwiSaver is a way of putting money away for your first home or for when you’re over 65 or maybe you’re no longer working. 

For many of us, the pension (or super) is not going to be enough to fund the lifestyle we’re hoping for. Let’s get into the numbers …

Right now, the pension gives a single person living alone just over $460 a week, and a couple about $712 between them. That’s not much to have lots of choice. Say you want to travel, see your family, get a motorhome, or even eat out. That’s gonna be really hard, especially if you don't have any other assets or property.

So how does it work? When you get a job you’re automatically enrolled in KiwiSaver and you decide how much you’ll put in. This can be three, four, six, eight, or even 10 percent of your salary or wages.

Your employer then puts at least three percent, and you can also get $521 each year from the government.

This money is invested for you by a fund manager who manages your kiwisaver money, and you can earn interest, and get capital gains on it, over your working life. That’s potentially 45 years.

This nest egg is all yours when you turn 65. 

Or, after just three years, you can use whatever you’ve saved to buy a first home. And there's also a possibility to use this money if something dire happens. This is known as a hardship withdrawal. 

So that’s what KiwiSaver is, but why is it so worth it? Here’s Sim.

Simran Kaur

KiwiSaver is such an interesting one because at least with shares or with savings, it feels like it's more closer to you or the goals that you have are perhaps for a holiday or retire earlier, or a home deposit, things that are maybe within the next 10 years or closer.

And when it comes to KiwiSaver. For most people, what we see in our, in our listeners, in our community, it just feels so far away there's such an emotional connection to it. 

Like you think, oh, if I admit that I need to focus on my KiwiSaver, I'm admitting that there's gonna be a stage in my life where I'm not gonna have an income, I'm gonna have to live off this money. And, it's so overwhelming to them that you almost just don't want to think about it. 

And it feels like there's so many more current concerns, like, will I be able to buy a home or will I be able to, you know, save up for X, Y, Z? 

But I really wanna challenge that and I really wanna say, well, you know, that time's gonna come whether we want it to or not, and maybe that's a tough love approach, but we've found that the biggest group of homelessness populations that are growing are actually women over 55 in certain parts of the world, so in the states and in, um, Australia. And that's scary. 

You don't want to think that if you don't have a retirement fund set up, if something happened to your partner or something happened to you, that you don't have any backup to take care of yourself like that.

It just should not be the case in a country like this. 

Brooke Roberts

And to Simran’s point, New Zealand has one of the highest rates of homelessness in the OECD.

So, if the downside is potentially life on the street, why do so many of us not even care about KiwiSaver? Here’s Sim again. 

Simran Kaur

I think people don't realise the true benefit of it. 

And like the difference between putting away an extra $100 a month, which you know, is great in the moment, but even just doing that in your twenties, the compounding effect that can have when you retire, whether that's in your sixties or you know, maybe even earlier, it can make a huge difference. 

And it just means there's more choice in your life and you don't want to be in a situation where you've retired and maybe you are having, again, the whole idea of choosing a life that you're living because you have to, as opposed to that you want to. 

And the fact that compound interest allows you to almost, you know, double your investments roughly every 10 years, give or take, that's not something that a lot of, um, things can do. 

And we can save our way to retirement, but it doesn't work. I think if you knew the difference in life you could live by having KiwiSaver and not, or extra, you know, contributions and not, I think, we’d have a lot more conversations about it. 

Brooke Roberts

Sim makes a great point about compound returns. It’s a game changer, and here’s why.

Compound returns is when you receive returns on the money you’ve invested. Then, your returns are invested, meaning your returns start earning more returns. And this snowballs, building over several years. 

There’s a lot of returns and confusion in there, so let me break it down.

Say you invest $100 and get 10% returns. You end up with $110 in your first year. But over 10 years your $100 becomes $259—that’s $159 just in compound returns. 

The secret to compound returns is time.

Brooke Roberts

Now let’s just rewind a bit. You might be wondering just how long has KiwiSaver been a thing? 

KiwiSaver ad voiceover

And you can be sure that from July, KiwiSaver will be available …

Brooke Roberts

So it started about 16 years ago in July 2007.

KiwiSaver ad voiceover

It’s the easy way to save for your future. The government …

Brooke Roberts

Employees were automatically enrolled in KiwiSaver, unless already in a super scheme. And employers had to start making contributions.

It was quite a change in thinking back then as financial journalist, author, and trusted expert on KiwiSaver, Mary Holm, remembers… 

Mary Holm

In the eighties, the share market went wild in NZ and everybody was investing in shares like you wouldn’t believe. 

But then in ‘87 there was the huge big share market crash, which turned everybody off shares, and so most people just got back into the good old NZ investment of rental property. 

And all the way through from then until KiwiSaver started in 2007, people were saving for retirement, but in a kind of vague sort of way, and maybe through a rental property, maybe through a few shares, maybe quite a lot of them just in bank term deposits. 

So pretty boring and I think the government, the Labor government at the time was really quite worried that people wouldn't have enough savings for their retirement.

And so it was Michael Cullen whose baby KiwiSaver was. He came in with it and there were quite a few criticisms of it at the beginning, but it took off like you wouldn't believe. 

And you know, I mean, it didn't take very long at all for one million and then two million people to be in the scheme. And now there are over three million, which is extraordinary in a population of five million.

So Cullen was right, we wanted it.

Brooke Roberts

And one of the key reasons KiwiSaver took off and remains successful is because you’re automatically enrolled.

Mary Holm

By making it that you're automatically in, unless you actually make the step to get out, was a stroke of genius, really, and around the world, it's been acknowledged as a really important part of making KiwiSaver work so well.

And then there were all the incentives as well, you know, the, I mean, the most obvious one was the $1,000 kickstart.

So for quite a few years, anybody who started KiwiSaver, who joined, got $1,000 put into their account from the government. And that you know, I was saying, lots of people were saying, well, why wouldn't you get $1,000 from the government? Oh, get in there while the going is good, and it turned out the going was good for only a while.

It just got too expensive. The government was trying to save money some years later. And so they made two steps: they killed the kickstart and they halved the government contribution. 

Brooke Roberts

I’m just going to jump in here, and say I know a lot of people who didn’t join the scheme till just after that kickstart was stopped. And yes, there is a bit of regret. But Mary says, even now, it’s still worth it. 

Mary Holm

It's still a good government contribution, which is for every dollar you put in, once a year, the government will put in 50 cents for every dollar you put in up to a maximum of $1,042 from you and $521 from the government.

Brooke Roberts

So when you hear people say KiwiSaver is free money, that’s what they’re talking about. More on that in our next episode.

Girls That Invest talks about all things money, and encourages people to think about who they want to be and how they’re going to get there. 

So I ask Sim, how does she want her retirement to look?

Simran Kaur

I want my retirement to look like me. Being able to decide, well, if I wanna stop working, I can. I enjoy being active. I enjoy, I really see myself, you know, being parts of clubs, or like your local rotary, like I'll be there. But I like the idea that I can say, well, if I don't wanna do this anymore, my retirements will be able to, my investments will be able to like, keep me through and help me.

I want to be able to own lots of dogs and, and maybe this is a bit of a sidetrack … 

Brooke Roberts

Love this.

Simran Kaur

A lot of dogs that are old, you know, the dogs that need like eye drops and ointments that no one really wants to take care of. I just want an old dog retirement home for myself. It's very specific, but if you have specific goals, you can reach them.

Brooke Roberts

I am so gonna come visit your whole dog retirement home and give heaps of pats and cuddles. That sounds gorgeous. Drop the eyedrops. 

Simran Kaur

Someone's gotta do it. 

Brooke Roberts

How are you going about preparing for your retirement?

Simran Kaur

So I have always had a KiwiSaver since I could, and that was thanks to my parents for setting it up when I was younger, but I still remember the meeting I had with the bank about it or with the KiwiSaver provider about it, and it felt very, like, okay, we're gonna put you in this fund.

And there was no discussion of like, why or how, or what that means. And so for a long time I didn't really engage with it or consider it. And it was only when I was on, um, you know, studying through my personal finance, um, course where I realised, oh, I should take care of my KiwiSaver.

And so what I did is I looked at, well, how much would I like to live off each year and what does that number look like?

Well, what do I need to do to have that? What's the lump sum that I need? And then, okay, well if this is the lump sum I need at 65, then how much do I need to put away every single month to on average reach that goal. And that really helped me cuz if you know what you are working towards, suddenly it's easier to put more away towards it.

Brooke Roberts

To find out how much you need in retirement, depends on what sort of lifestyle you have in mind. Have a think about how much you’d like to live on each year. 

Then go to Sorted’s website, that’s sorted dot co dot nz, and use the KiwiSaver calculator. 

It sounds scary but it’s worth doing. As you’ll hear throughout this podcast series, time is your friend, and it’s never too late to start your KiwiSaver journey.

Choosing a provider, if you don’t have one already, is the next step, as Sim explains. 

Simran Kaur

I think if I was re-looking at my KiwiSaver provider today, the first thing I would look for is, what are they investing in?

Because I don't think a lot of people recognise that it's not just the brand, it's the funds within the brand. And so if you've got an idea of, well, I would like a high growth fund that invests in maybe a little bit of New Zealand, but more overseas companies or brands, then kind of deciding on the fund that you want and then looking for a provider that has that was one of my most important aspects, but also user friendliness.

You know, a provider that makes it easy for me to see what's going on. Easy to log in, easy to check something that makes me feel like it's not a chore and that just makes all the difference cause I'm more likely to engage in it. One of the best pieces of advice I was given was, go to a gym that looks nice, even if it costs a little bit more.

And I was like, why that? Why would I spend more money on a gym? If you go to a gym that looks nice, you're just more likely to turn up, and you are more likely to engage with it and feel better about it, versus maybe something that gets the job done, but you don't feel good there. Things like user interface, maybe not to other people, but to myself, makes a big difference as to what I use.

Brooke Roberts

What, what changes would you like to see happen in KiwiSaver? 

What are some things that you think, oh, if this changed, um, it would set up more people or set me up better? Or is there anything you actually just wanna see changed when it comes to KiwiSaver? 

Simran Kaur

I think I would like to see people understanding where their money's actually going to change.

Cos there's a misconception because it's got the word ‘saver’ in its name, a lot of people think it is just a saving scheme. And so you're almost less inclined to put your money into it cause you go, well I could just save in my own bank account. Or if we like put it out there that no, this is going into investments and these are gonna compound and the impact of putting money in KiwiSaver earlier on is so much greater than we share. I think that would have such an impact. Otherwise it does come across as we're just, you know, stashing a little bit of cash away and so, you know, I could do that in my own Wallet.

The other thing that would be great to see is having more transparency around understanding what companies, or what funds, where is my money actually going? Is there ESG options available? Is that important to me? Do I care about the ethical impacts of what I can do with my money and the change I can create while also creating wealth myself. It’s a double win.

Brooke Roberts

Are there any other misconceptions you've heard or noticed when it comes to KiwiSaver?

Simran Kaur

Um, that we don't need it. I think that's the biggest misconception.

Brooke Roberts

So what did we cover in this episode? Here’s three takeaways.

One: KiwiSaver helps you live the life you want, now with your first home and later once you turn 65.

Two: KiwiSaver enables the magic that is compound returns. That is when you earn money on both the money you’ve invested, and the returns it earns.

And three: once you start working, you’re automatically enrolled in KiwiSaver and your employer will put in from three percent. Plus, the government can top it up by $521 every year. 

Coming up on The Payoff, you’ll hear from New Zealanders across all ages and stages about their experiences.

Voice 1

Every month when I notice a dent in my pay check, and I go why did I set it to eight percent when I was 14?

Brooke Roberts

Their dreams.

Voice 2

Ideally I’d like to have enough money that I could travel wherever I wanted to.

Brooke Roberts

And their regrets when it comes to putting money away for the future.

Voice 3

I think if I understood it a bit better, I’d have a better time with it.

Brooke Roberts

Plus, what have we got wrong about retirement saving? 

Mary Holm

When people say they can’t afford it, I sort of challenge them on that.

Brooke Roberts

And is it true it’s free money?

Brad Olsen

There’s very rarely free money with no strings attached.

The Payoff is not financial advice. We recommend talking to a licensed financial adviser. You should review relevant product disclosure documents before deciding to invest. Investing involves risk. You might lose the money you start with. Content is current at the time.

The Payoff is for a New Zealand audience.

Join the KiwiSaver scheme that’s more you

Portfolio displayed is a guide, not from a real customer. For informational purposes only.
A young woman looking off to the side holds a lime-green electric guitar. Superimposed next to her is an iPhone showing a screen in the Sharesies app. The screen shows a KiwiSaver investment portfolio, made up of the Pathfinder Ethical Growth Fund, the Smartshares NZ Top 50 Fund, Meridian Energy, and Infratil.