How much ignoring your KiwiSaver could be costing you

New Zealanders could be missing out on as much as $312,000 per person by ignoring their KiwiSaver, a new report has found.

National Capital’s latest Value for Money report for the December quarter found the 703,325 non-contributing members enrolled in KiwiSaver could collectively be losing $113 billion dollars by retirement.

Those at risk of missing out the most are from the 18 to 24-year-old age group – with individuals potentially walking away from up to $312,004 if they never join the retirement savings scheme or join but don’t contribute.

Kiwis between 25-34 years of age could each be missing out on up to $254,988 by retirement.

Meanwhile, those in the 35-44 age group could be potentially losing up to $156,319; the 45-54 age group up to $75,931; and those between 55-64 years of age up to $14,642.

Under-contributing to KiwiSaver could also have a negative impact on Kiwis’ retirement prospects, the report found.

National Capital’s KiwiSaver Contribution Index fell from 4.30 per cent to 4.27 per cent in the December quarter.

However, this is lower than the “optimal” index of 6.30 per cent, said Clive Fernandes, director of National Capital.

“Although there could be many reasons for the drop in contributions, we know that the current cost of living crisis affecting New Zealanders will be one key factor,” Fernandes said.

“Many people are more mindful of how much money is coming in, and many are likely having to prioritise their immediate financial needs over their future retirement savings due to the pressure of rising expenses.”

Using the Contribution Index, an average 40-year-old Kiwi earning $70,000 per year with $33,000 currently in their KiwiSaver fund and who contributes 4 per cent to a KiwiSaver growth fund could be left $142,000 short of what retiring Kiwis would need as a lump sum to receive a normal weekly income in retirement.

National Capital’s figures were based on Massey University’s 2022 Retirement Expenditure Guidelines report, which calculated the lump sum required at retirement to fund the additional spending over NZ superannuation.

According to the Massey report, a two-person household in a metro area would need $191,000 for a “no-frills” lifestyle and $755,000 for “choices”. Living provincially, those numbers fell to $77,000 for no-frills and $480,000 for choices.

A one-person household in a metro area would need $277,000 for a no-frills lifestyle and $561,000 for choices.

“With the potential negative impacts of non-contribution at retirement, we encourage KiwiSaver members to find a balance between their immediate financial needs and saving for a stable retirement where they can,” Fernandes said.

Which fund comes out on top?

High-growth funds last year on average outperformed conservative funds by nearly double, according to the Value for Money report.

Average one-year returns to December 31 for high-growth funds came in at 15.49 per cent compared to 8.15 per cent for conservative funds.

The highest-performing fund was the FANZ KiwiSaver High Growth Fund, returning 19.70 per cent last year.

All funds yielded positive returns for the year to December 31.

The fund with the lowest return was Pathfinder KiwiSaver Scheme’s Conservative Fund, returning 6.96 per cent.

The figures are after fees but before tax and based on the funds in National Capital’s sample.

Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports.