KiwiSaver for Kids

Enrolling children in KiwiSaver at a young age can help instil good saving habits, expose them to the world of investing and provide them with a head start on their financial journey. However, it is essential to understand the advantages and disadvantages of KiwiSaver for kids to make an informed decision and maximise the long-term benefits.

Advantage of KiwiSaver for Kids:

  1. Free to Join: One of the significant advantages of KiwiSaver for kids is that it is free to join. There are no signup fees, making it accessible to all families. However, it is important to note that ongoing management and membership fees apply, which are automatically deducted from the KiwiSaver funds.

  2. Benefits for Buying a House: Once your child has been a member of KiwiSaver for three years, they may be eligible to withdraw a portion of their savings to assist with purchasing their first home. Your child’s KiwiSaver investment could make a significant difference in helping them achieve their homeownership goals in the future. To read more about first home withdrawals read our guide here.

  3. Financial Education: KiwiSaver schemes provide regular member statements, typically sent annually. These statements offer valuable information about the returns, fees, and performance of the fund. By reading and understanding these statements, children can develop a foundation of investment knowledge and gain a better understanding of how their savings are growing.

  4. Teaches Good Habits: Joining KiwiSaver at a young age helps children develop good saving habits early on. By starting early and contributing regularly, children can learn the importance of saving and investing for their future.

  5. Flexibility to Switch Funds: KiwiSaver offers the flexibility to switch funds if needed. Thousands of people switch KiwiSaver providers every month, and the process takes less than two minutes. There are no limits on changing funds, and no fees are charged for switching. This flexibility allows parents and guardians to choose the best investment strategy for their child's changing needs and risk tolerance. Not sure where to invest? Use our Fund Selector Tool here, to help you better understand how your approach to risk translates to the investment options available to you.

  6. Compound Interest: KiwiSaver contributions for children can accumulate over time, teaching them the concept of compound interest. Even small regular contributions can grow significantly over several decades.

Disadvantages of KiwiSaver for Kids:

Irreversible Commitment: Once a child is enrolled in KiwiSaver, it is challenging to opt-out. You may have the option to opt out in the following situations:

  • If your employer mistakenly enrolled you before you turned 18.
  • If you were enrolled without the consent of your guardians and you did not give your consent to join KiwiSaver.
  • If you are under 16 years old and wish to opt out, with the agreement of your guardian.

You may not have the option to opt out in the following situations:

  • If you personally contacted a provider and selected your own investment scheme.
  • If your guardians enrolled you in KiwiSaver or provided consent for you to join.
  • If you voluntarily opted in to KiwiSaver immediately after turning 18.
  1. No Employer Contributions: Children under 18 do not receive employer contributions to their KiwiSaver fund. Unlike adults, who have a percentage of their wages directed to KiwiSaver, children's savings are limited to personal contributions.

  2. No Government Contributions: Government contributions to KiwiSaver start at age 18. Children miss out on this additional benefit, which can be as high as $521 per year for those who contribute $1,042 or more annually between 1 July – 30 June.

  3. Fees: Most KiwiSaver schemes charge membership and management fees, even for children with low savings balances. These fees can impact the overall growth of the savings. However, it is worth noting that some funds waive these fees for children, so it is essential to explore different KiwiSaver options to find the most cost-effective solution.

  4. Possibility of Low Returns: Depending on the fund's performance, fees may outweigh the returns, making it challenging for the savings to grow.

  5. Locked-In Savings: KiwiSaver funds are generally inaccessible until retirement, except for a first-home withdrawal. This means that children cannot use their KiwiSaver savings for other purposes such as university expenses or buying a car. The locked-in nature of KiwiSaver differentiates it from other savings schemes and requires careful consideration of long-term financial goals.

If you would like to discuss your investment options in Mercer’s KiwiSaver scheme or FlexiSaver, please speak with one of our Financial Advice team members. You can fill out this online form for a no obligation call back from Mercer’s financial advice team

Mercer also publishes monthly investment performance and market updates, available on our website. To read our latest monthly report please click here.

Additional resources

The information contained in this article is intended for general guidance only. It does not take into account your particular financial situation or goals. Before making any investment decision, you should refer to the Product Disclosure Statement or consult an appropriately qualified financial adviser.