Q: I’m a little confused by the locked thing and the UniSaver employer payment. It sounded like the argument was to have 3% in a locked KiwiSaver fund, and 5% in UniSaver (so 8% in total; 5% with UniSaver and 3% with another provider to get the government contribution).

A: Sorry if the explanation was confusing. It is complicated. The main point here is that UniSaver has its own locked section which works much like KiwiSaver. Any contributions you make to the locked section of UniSaver qualify for government contributions (up until age 65). The benefit of belonging to UniSaver is that your employer will contribute more on your behalf than they would if you were in KiwiSaver alone. Here’s how to get the most from your employer and government contributions while keeping your contributions to a minimum:

• Take a successive savings suspensions from KiwiSaver. You can do this via MyIR for 12 months at a time.
• Contribute 3% of your salary to UniSaver’s locked section (to get government contributions)
• Contribute 2% of your salary to UniSaver’s standard section.

Under this scenario, your contributions to UniSaver total 5% of salary and your employer will contribute 6.75% of salary (before tax). You will also qualify for the maximum government contribution of $521.43 so long as your salary is at least $34,762.

If you wanted to save more of your pay, you could do it this way:

• Contribute 3% to KiwiSaver
• Contribute 5% to UniSaver’s standard section.

Under this scenario, your contributions to UniSaver and KiwiSaver total 8% of salary and your employer will contribute 6.75% of salary (before tax). You will also qualify for the maximum government contribution so long as your salary is $34,762 or more.

Editor’s note:

The main takeout here is that, for staff at most universities, you need to contribute 5% to UniSaver in order to get the maximum employer subsidy of 6.75%. However, Victoria University of Wellington, Lincoln University and University of Otago are slightly more lenient when it comes to their employer subsidy. They will contribute a total of 6.75% if you contribute 3% to UniSaver’s standard section and 3% to KiwiSaver.

Remember, you generally won’t be able to access your savings in KiwiSaver or in the locked section of UniSaver until age 65. You can access savings in the standard section of UniSaver when you leave the university sector (i.e. when you are no longer working for an employer that participates in UniSaver).

Q: What would you recommend to someone who is starting out late saving for their retirement? I am 50, I have spent much of the past 20 years raising a family and now feel behind the eight ball.

A: While it’s great when someone starts their retirement saving young, at 50, you still have plenty of time to build up a good chunk of money. Keep in mind, too, that many New Zealanders don’t stop work at 65. Working for a few years after that gives you two advantages:  you have more time to save, and you have fewer years retirement to fund!

I suggest you start with UniSaver, KiwiSaver or both, ideally contributing more than the minimum to get the maximum bonuses from the government and your employer. Then plan to gradually increase your contributions, perhaps by 1% more of your pay each year. You probably won’t notice it much at the time, but it will turbocharge your savings. 

Put money you don’t expect to need within 10 years into a growth fund. It will be more volatile, but average returns over the years should be higher.  Promise yourself not to reduce risk because your balance falls.

Shorter-term money is best in a medium-risk fund. And when you’re within 3 years of spending some of your money, put that – not all your savings, but the short-term portion of it – in a cash fund. Then it won’t suddenly lose value when you’re about to spend it. 

Q: If leaving the Uni, would you recommend moving the unlocked portion of your UniSaver to a KiwiSaver provider?

A: Not necessarily. If you leave the money in unlocked UniSaver, you can withdraw it at any time. And you never know when you might unexpectedly want access to the money for, say, a big property maintenance job, or helping a relative start a business, or funding medicines that are not subsidised in New Zealand.

However, if you have access to other cash in those types of situations, you could move this money to a KiwiSaver fund, thus tying it up until you are 65.

The question then becomes: Would you do better staying in UniSaver – which is similar to KiwiSaver? And the answer is, “nobody knows”.

When considering KiwiSaver, I strongly recommend picking a fund based on:

• Getting the right risk level for you. See above.
• Choosing a low-fee fund at that level. In KiwiSaver, you can use the Smart Investor tool on sorted.org.nz to rank funds by fees. 

UniSaver is a fairly low-fee provider. At most risk levels its fees are less than half the KiwiSaver average (as seen in the Smart Investor tool). If you’re happy with your UniSaver fund, you may want to just stay there.