Are you confused about KiwiSaver returns? Understanding KiwiSaver returns will help you make sure you are in a fund that performs well - meaning it makes you more money.
The performance of KiwiSaver funds is often ranked on returns. Fund managers want to paint their funds in the best light possible to attract investors, so they may choose to advertise their returns based on a very specific period of time when the fund performed well. This means there is some confusing information out there - the last thing anyone needs when it comes to KiwiSaver.
That’s why we are here to explain KiwiSaver returns.
What are returns, anyway?
Returns are the money your investment earns. They go up and down over time, reflecting changes in the market and in the value of assets.
What does rate of return mean?
KiwiSaver funds report a rate of return. This is the net gain or loss over a specific period of time. It tells you how much the value of the fund changed from the beginning of the time period to the end. It is expressed as a percentage of the investment’s initial value.
A higher rate of return means more money was made on that investment. So, fund managers generally advertise their rate of return in the most favourable way in order to attract more investors. This is why you will see some providers using 12-month rates, or even shorter time periods. (See our article on BS KiwiSaver Marketing to see what we think of that.)
Generally, five-year rate of returns provide a better long-term picture of the fund’s performance. This figure reflects an average of how much the fund has grown each year for the past five years, rather than a specific time period the fund manager has chosen to market.
So I should pick the fund with the highest rate of return, right?
Not so fast. A golden rule of investing is that past performance is no guarantee of future performance. Just because a fund has done well doesn’t mean that it will continue to do so. A rate of return is useful to look at to see if the fund has consistently performed above or below average compared to similar funds. If other similar funds are performing well and yours isn’t, there’s something wrong.
How do I compare returns?
- Do a lot of complicated research.
- Believe what is marketed to you.
- Let BetterSaver do all the work for you.
We’ve got this handled for you. Comparing the rate of returns for KiwiSaver funds is confusing. It’s one reason why our founder, Joe Taylor, started BetterSaver.
There are over 180 KiwiSaver funds! Most people are not going to spend the time to thoroughly research them, so we do it for you. We have picked through all of the data, including rate of returns, to assess the best fund for you.
A positive return means I’m making money. Do I have to pay tax on it?
Yes. A return is the money your investment earns, so you are taxed on it.
Your KiwiSaver contributions are deducted from your pay after tax, so you have already paid tax on what you put into your KiwiSaver account. You then only pay tax on the returns your KiwiSaver fund earns for you.
How are returns taxed?
For most people, their KiwiSaver fund is what is known as a “portfolio investment entity,” or PIE (this just means that the fund is invested in various types of investments). A PIE pays tax based on the income of each investor. Your tax rate is based on your income from the previous two years, and it’s called your “prescribed investor rate” or PIR. Your provider will ask you to update your PIR every two years to make sure you’re paying the correct amount of taxes.
The IRD has a handy calculator to find your PIR. If you don’t provide a PIR, you will be taxed at the default rate of 28% and you could end up paying extra.
Returns aren’t the only concern
There is a lot more than returns to factor in when deciding which KiwiSaver fund is best for you.
Your fund type, acceptable level of risk, goals, and values are all factors in choosing a KiwiSaver fund. Funds are categorized from conservative to growth, based on risk level. Your appropriate risk level depends on what you’re comfortable with and how you plan to use your KiwiSaver money. Your values come into play because some KiwiSaver providers invest in ethically questionable things like nuclear weapons and animal testing.
Our team at BetterSaver assesses all of these factors when helping you choose a KiwiSaver fund. We are passionate about helping every Kiwi choose the best fund that matches their circumstances to create a better future for all New Zealanders.