Diana Clement: How to supercharge your KiwiSaver

Make sure your KiwiSaver is positioned to take advantage when stock markets rebound. Photo / Getty Images

OPINION:

Now is probably a good time to ignore your KiwiSaver balance. It's also an ideal time to ensure it bounces back better.

When markets bottom out suddenly it can feel like you've lost money forever. That was the case in 1987, 2008, 2020, and now 2022 when we saw major market "crashes" (aka corrections).

Watching your balance daily in these times can lead to bad decision-making. Failings of the human brain make us invest when markets are booming and stop when they're down, even though the opposite makes more sense.

My Twitter feed lit up with collective horror a few weeks back when a young woman told a 1 News reporter that she wasn't worried about the markets because she'd moved her KiwiSaver to conservative until it was all over. For anyone who doesn't know this already, that locks in the losses and means her KiwiSaver won't rebound as it would if the money had been kept in a growth or balanced fund.

After each crash, investors who didn't sell or switch down recouped their losses, providing their investments had been sensible in the first place and not some get-rich-quick scheme. It can take a few years following a major crash for markets to recover lost ground - although it was only months in 2020. Over 10 years a growth fund will far exceed the returns on conservative, even with these sudden drops.

When markets are down it's time to keep up regular KiwiSaver contributions, not stop them. You're getting more for your money.

In fact, you might want to increase your contributions. A great way to do that is to increase the percentage you contribute before tax. The default contribution is 3 per cent of pre-tax pay, which is matched by your employer. Members can choose to contribute 4 per cent, 6 per cent, 8 per cent or 10 per cent. The IRD has a useful page with more information. Just be aware that your employer only needs to pay 3 per cent.

I asked the IRD for the figures of how many Kiwis are choosing to pay more than the 3 per cent minimum. For the year to May 2022, of those contributing via their wages or salary, 60.89 per cent pay 3 per cent and the other 39.11 per cent have chosen to pay more. Of those, 20.96 per cent are paying 4 per cent and the remaining 18.15 per cent have chosen to pay either 6 per cent, 8 per cent or 10 per cent.

If you don't want to commit yourself, you can also make one-off or regular additional voluntary contributions. It doesn't need to be a lot. Even $5 a week really adds up.

Set up a regular automatic payment direct from your bank to your KiwiSaver provider. Or you can make a one-off payment via online banking by choosing the IRD payment option and then "KiwiSaver member account" as your payee type. The money will be forwarded to your KiwiSaver account.

If you have a lump sum to invest, consider spreading out your contributions to avoid investing just before a freefall.

It's really important to keep up payments if you possibly can when you're on paid parental leave, unpaid leave, or are receiving ACC or Work and Income benefits. An automatic payment is a great way to do this. Women's KiwiSaver balances suffer more than men's in most cases. Contributing equally to both partners' KiwiSaver should be part of the parenting agreement between you and your partner.

If you can't afford the 6 per cent that would be paid into your KiwiSaver if employed, at least try to contribute a total of $1042.86 by June 30 each year, which is $20.06c a week. This will ensure you qualify for the full government contribution of $521.43. Start now for next year. Nowhere else will you earn a 50 per cent return on your money before investment growth.

Finally, make sure you're in the right fund for your long-term goals. Just be careful if that's a more conservative fund than you're in at the moment seek some advice about when to switch. Doing this just after your fund has sustained large falls might not be right.