KiwiSaver for Kids – The Definitive Guide

Warning for parents: If you enrol your child in KiwiSaver, there is no opt-out later on. This means if they don’t want to contribute later on, their only option is to arrange a savings suspension. Please consider KiwiSaver carefully before signing up to make sure both parents and child agree.

Summary
MoneyHub is very positive towards KiwiSaver as a savings tool, but that doesn’t mean it’s right for everyone. In this guide, we outline the pros, cons and must-know facts when it comes to KiwiSaver and children. To be clear, we define ‘child’ as any New Zealander under the age of 18. We appreciate that retirement lifestyle is a foreign concept to any 5-year old (or even teenager). Still, our view is that KiwiSaver can offer long-term financial benefits with minimal upfront costs.

This guide covers:

• KiwiSaver for Kids – Pros and Cons
• Next Steps: Joining KiwiSaver and Choosing a Fund to Invest in
• Our thoughts on KiwiSaver for Kids

To understand the benefits and limitations, we’ve itemised the pros and cons of KiwiSaver for children to help make the right decision and maximise long-term benefits.

​Pros of KiwiSaver for children:

1. KiwiSaver is free to join – there is no signup fee, although you will pay ongoing management and membership fees which are deducted automatically from your KiwiSaver funds. We discuss these below in the cons section.
2. Being a KiwiSaver member offers benefits when buying a house – this can make a big difference when putting down a deposit. Two schemes are exclusive to KiwiSaver – the HomeStart Grant and the First-Home Withdrawal. HomeStart offers free money if you buy a home under a specific price (depending on the area), while First-Home Withdrawal lets you use the bulk of your KiwiSaver balance to put down a deposit on your home. As any first homebuyer will tell you, getting together enough money for a deposit is likely the hardest part of the process.
3. KiwiSaver allows kids to understand more about the financial markets – KiwiSaver schemes send member statement every three months which explain the returns, fees and a summary of the fund’s performance. Reading these statements helps to build a foundation of investment knowledge.  
4. KiwiSaver for children teaches good habits – As Susan Edmonds from Stuff.co.nz states; “joining KiwiSaver young removes the likelihood that your child may drag their feet about it later on”. We believe this to be accurate – if you’re in from a young age, you can save responsibly and not be too concerned about figuring out a nest egg for retirement in 50 or so years.
5. KiwiSaver options are not fixed – you can switch funds later. Thousands of people switch KiwiSaver providers every month, and it takes less than two minutes. There’s no limit on changing funds either, nor is there any fee.  
6. Many KiwiSaver schemes offer incentives for children to join – JUNO and Simplicity are just some examples of schemes offering fee reductions for children. Our favourite KiwiSaver funds has more details.   
7. KiwiSaver contributions add up, teaches the concept of compound interest. As an example, if you contributed $10/week from age 15 to 65, you’d have a KiwiSaver balance of $83,000 by the time you retire (assuming after-tax returns of 4% p.a. year-on-year). If you earned $50,000 a year from age 20 to 65 and contributed the minimum amount (3%), you would be left with a $399,000 KiwiSaver balance by the time you reach 65 (with the same 4% p.a. returns assumption). As these examples show, KiwiSaver money adds up to something significant if you consistently contribute.
8. KiwiSaver balances can be withdrawn if you permanently leave New Zealand. If you move to Australia, Europe or anywhere later on, you are entitled to request all of your KiwiSaver contributions (employer and personal) to be paid to your bank account.
9. Many children have enrolled already. According to a recent Stuff article, there were around 8,500 KiwiSaver members aged 17 and under in 2019. While this shouldn’t be considered a reason to join, the high number of enrolments suggests KiwiSaver is popular with children and parents looking for long-term financial security.

Cons of KiwiSaver for children:

1. KiwiSaver is for life - There is one significant drawback to KiwiSaver – you can’t opt-out. Once a child enrols, there's almost no option to opt-out. This means the only option to stop your employer deducting contributions from your pay is to arrange a savings suspension, which needs to be renewed on an annual basis. This can become tiresome if you or your child has no short-term or long-term intention of contributing to KiwiSaver.
2. No employer contributions are paid to anyone under 18 - Unlike adults, children do not have 3% of their wages directed to their KiwiSaver fund courtesy of the employer. This limits the savings to the personal contribution rate, which for most people is usually 3%.
3. No KiwiSaver government contributions - These only start for those 18 and over, and can be as high as $521 per year (if you contribute $1,042 or more). The average child with part-time work would likely contribute no more than $300 or $500 per year, depending on the number of hours worked, so waiting until 18 for this to start won’t make a significant difference in savings goals.
4. Fees are charged – Very few KiwiSaver schemes waive membership fees and management fees for kids. This means even if the savings balance is low (i.e. around $500), most KiwiSaver funds will charge $20 to $40 a year for being a member, as well as a percentage of the balance as a management fee. There are funds which waive these fees; our favourite KiwiSaver funds has more details.
5. Possibility of low returns – Let’s take an example. Claire has a $1,000 KiwiSaver balance and is charged $36 a year in membership fees and 1% management fees ($10, as 1% of $1,000 = $10). This means her total fees for the year are $46. Returns will need to be higher than 4.60% p.a. for the fund to pay for itself.
6. Money is locked up until retirement (except for a first home withdrawal) - this is a significant limitation and differentiates KiwiSaver from any other savings scheme. If you want to use your KiwiSaver to help pay for university or buy a car, that won't be an option. 

If you decide to join KiwiSaver, you'll need to decide on a KiwiSaver fund first. We explain the three-step process below:

Step 1: Picking a fund or scheme:

• Unlike adults, children can’t join KiwiSaver through their employer. The only way to join is to pick a KiwiSaver scheme and sign up via the scheme's website.
• This is where things can become complicated, as the question ‘which KiwiSaver fund is best for kids?’ comes into play.
• MoneyHub doesn’t offer financial advice however we can’t emphasise enough that fees matter, and that’s especially the case when it comes to KiwiSaver accounts for kids. That’s because for many kids, with low balance accounts, fee will eat into returns. Finding a KiwiSaver provider who doesn’t charge the member fee for kids, is a key consideration. Among those are Pathfinder KiwiSaver, Simplicity and Juno KiwiSaver, all of whom waive the member fee for kids. Be in mind the investment fee still applies to most, so be sure to find out what the full fees charged are. 
• While we don’t offer any financial advice, our view is that two funds, in particular, have stood out from others. The Simplicity Growth Fund and the JUNO Growth fund are shortlisted in our Favourite KiwiSaver funds guide under funds for children. Our reasoning is explained in this guide, but generally, we favour long-term, growth-orientated funds that have low fees and clear investing strategies. We believe both of these funds offer this.

Step 2: Signing up:

• As KiwiSaver is a financial product, there is a strict process for anyone signing up. Anyone under 18 is legally a ‘minor’ which means a parent or legal guardian needs to be a co-signatory on the KiwiSaver enrolment form. Specifically:
• Any child aged 16 or 17 can join KiwiSaver with the signature of one parent or legal guardian
• Any child under 16 can join KiwiSaver with the signature of BOTH parents or ALL legal guardians

Step 3: Contributing

• Anyone under 18 who isn’t in paid employment is not required to contribute. In such cases, the only way to grow a KiwiSaver balance is to make voluntary contributions at any time, either directly to your KiwiSaver provider or through Inland Revenue.

Pro tip:

• Once a KiwiSaver member is over 18, they are entitled to receive a subsidy from the government each year of 50 cents per $1 contributed, up to a maximum of $521 per year. Thus the requirement for the $521 maximum is that a member contributes over $1,042 into KiwiSaver in one year. For most people, that would be wages of around $25,000 per year and therefore is not realistic for young adults who are studying.
• However, by voluntarily contributing an amount to reach $1,042 in total, the $521 will be paid by the government. For example, Matthew earns $10,000 working part-time, and his total KiwiSaver contributions are $550 for the year. In addition he will receive the government subsidy of $275. He decides to voluntarily contribute $500 from his savings, meaning his total contributions are now $1,050. This means that the IRD now contributes the maximum of $521 to Matthew’s KiwiSaver balance.

KiwiSaver for kids is overall a positive opportunity, but picking the right fund (to avoid an investment balance being eaten up in fees) and actively contributing as an adult are essential to make sure it delivers value for money. As 1 in 3 KiwiSaver members are long-term non-contributors, it’s very easy to fall into the trap of being a KiwiSaver member with a static balance. This is usually bad news when it comes to funding retirement.