KiwiSaverTab Documentation

The KiwiSaverTab is dedicated to managing the KiwiSaver accounts for both the main client and their partner. KiwiSaver is New Zealand's voluntary retirement savings scheme where contributions are taxed at PIE (Portfolio Investment Entity) rates with a maximum of 28%. This tab manages current balances, contribution schedules, fund investment strategies, and consolidation into regular investment funds at retirement.

This tab controls:

• KiwiSaver Balances: The current balance for both the main client and their partner.
• Advanced Settings: Detailed configuration for contribution schedules, fund types over different life periods, and consolidation options accessed via the settings icon.
• One-off Contributions: Lump-sum contributions to a member's KiwiSaver account at specific ages (e.g., inheritance, bonus payments, voluntary contributions).

Inputs

KiwiSaver Balances

• Current Balance: The starting balance of the KiwiSaver account at the beginning of the financial plan. This represents the accumulated balance from all past contributions and returns.
• Settings Icon: Opens the advanced settings modal for configuring contribution schedules, investment periods, and consolidation options.

Advanced KiwiSaver Settings (Modal)

Contribution Schedules

Unlike regular incomes where KiwiSaver contributions are automatically calculated from employment income, these schedules allow modeling of additional voluntary contributions or specific contribution patterns over different life stages.

• Contribution Amount: The annual voluntary contribution amount for this period.
• Start Age: The age when this contribution schedule begins.
• End Age: The age when this contribution schedule ends.
• Multiple Periods: Each member can have several contribution periods (e.g., $5,000/year ages 30-45, then $10,000/year ages 45-60).

Note: These are in addition to the automatic employee/employer KiwiSaver contributions calculated from employment income in the Income Tab.

Investment Periods

Allows setting different investment fund strategies for various age ranges, similar to lifecycle investing in regular investment funds.

• Fund Type: The risk profile for the period. Options include:
  • Conservative: Lower risk, bonds and cash-heavy (typical for near-retirement)
  • Balanced: Moderate risk/return mix
  • Growth: Higher equity allocation for capital appreciation
  • Aggressive: Highest risk/return profile (rare for KiwiSaver but available)
  • Custom Funds: Pre-configured funds created by the adviser
  • Starred Market Funds: Actual KiwiSaver funds from providers with historical return data
  • Custom (Manual Values): Allows manual input of all parameters
• Start/End Age: The age range for which this strategy applies. Periods must be sequential and cover the entire planning horizon.
• Rate of Return (%): Expected annual return (for Custom funds only). Starred Market Funds use historical data.
• Standard Deviation (%): Volatility/risk of returns used in Monte Carlo simulations.
• Income Portion (%): Percentage of returns taxed as income (vs capital gains). Typically 60-90% for KiwiSaver depending on asset allocation.

Starred Market Funds

The system integrates with MorningStar data for real New Zealand KiwiSaver funds:

• Time Period Selection: Choose which historical period to use for expected returns:
  • 1 Year: Recent short-term performance
  • 3 Years: Medium-term trend
  • 5 Years: Standard period for long-term planning (default)
  • 10 Years: Long-term historical average
• Provider Funds: Real funds from providers like ANZ, ASB, Fisher Funds, Simplicity, etc.
• Automatic Data: Returns, fees, and asset allocation (income portion) are automatically populated from MorningStar data.

Consolidation

This powerful feature models transferring the KiwiSaver balance into regular investment funds at a specified age (typically retirement at 65).

• Consolidate KiwiSaver at age: Toggle to enable moving the entire KiwiSaver balance into investment funds.
• Consolidation Age: The age at which consolidation occurs. Common choices:
  • Age 65: NZ Superannuation eligibility age
  • Age 60-64: Early retirement scenarios
  • Age 70+: Delayed consolidation strategies
• Allocation Percentages: How to distribute the KiwiSaver balance across active investment funds. The total must equal 100%.

Example Consolidation:

At age 65:
- KiwiSaver Balance: $500,000
- Allocation: Fund 1 (Conservative) 60%, Fund 2 (Balanced) 40%

Result:
- KiwiSaver balance becomes $0
- Conservative Fund receives $300,000
- Balanced Fund receives $200,000

One-off KiwiSaver Contributions

Lump-sum amounts added to a specific member's KiwiSaver account at a particular age.

• Amount: The value of the one-off contribution (in nominal terms, not adjusted for inflation).
• Age: The age at which the contribution is made.
• Member: Specifies whether the contribution is for the main client or the partner.
• Details (Optional): A brief description (e.g., "Inheritance", "Bonus Payment", "Voluntary Contribution").

Example Use Cases:

• Large bonus payments deposited into KiwiSaver
• Inheritance or windfall used to boost retirement savings
• Catch-up contributions for members with contribution holidays
• Transfer from overseas retirement schemes

Calculations

Total KiwiSaver Contributions

KiwiSaver contributions come from two main sources that are calculated differently:

1. Automatic Employment Contributions (calculated in Income Tab): These are based on employment income and KiwiSaver rates specified in the Income Tab:

From Primary Income:
  Employee Contribution = Primary Income × (Employee KiwiSaver % / 100)
  Gross Employer Contribution = Primary Income × (Employer KiwiSaver % / 100)
  ESCT Rate = Based on total annual income (10.5% to 39%)
  ESCT Tax = Gross Employer Contribution × ESCT Rate
  Net Employer Contribution = Gross Employer Contribution - ESCT Tax

From Additional Incomes (if tax type is Main or Partner):
  Employee Contribution = Additional Income × (Employee KiwiSaver % / 100)
  Gross Employer Contribution = Additional Income × (Employer KiwiSaver % / 100)
  ESCT Rate = Based on total annual income
  Net Employer Contribution = Gross Employer Contribution - ESCT Tax

Total from Employment = Sum of all Employee Contributions + Sum of all Net Employer Contributions

2. Voluntary Contributions (from Contribution Schedules): These are the additional contributions configured in the KiwiSaver Tab:

For each active contribution period:
  If Current Age is between Start Age and End Age:
    Voluntary Contribution = Annual Contribution Amount

3. Total Annual Contribution:

Total Annual KiwiSaver Contribution = Employment Contributions + Voluntary Contributions

Complete Example:

Employment Contributions:
- Primary Income: $100,000
- Employee KiwiSaver: 4% → $4,000
- Employer KiwiSaver: 3% → $3,000 (gross)
- ESCT Rate: 33% (for $100k income)
- ESCT Tax: $3,000 × 33% = $990
- Net Employer: $3,000 - $990 = $2,010
- Employment Total: $4,000 + $2,010 = $6,010

Voluntary Contributions:
- Contribution Schedule: $5,000/year (ages 40-50)
- Current Age: 45 → Active
- Voluntary Total: $5,000

Total Annual Contribution = $6,010 + $5,000 = $11,010

KiwiSaver Returns

The KiwiSaver balance grows based on the expected return of the chosen fund type for the current investment period, adjusted for tax (always PIE rates for KiwiSaver). The calculation uses Monte Carlo simulation to model market volatility.

Step 1: Add Annual Contributions At the beginning of each year, all contributions (employment + voluntary + one-off if applicable) are added to the balance.

Balance After Contributions = Start of Year Balance + Total Annual Contributions

Step 2: Calculate Gross Return The model simulates a return using the fund's expected return and risk (standard deviation) for the current investment period.

Gross Annual Return = Balance After Contributions × normalRandom(Mean Annual Return %, Standard Deviation %)

The normalRandom function generates returns that vary around the mean, with standard deviation controlling volatility. This models real-world variability in investment returns.

Step 3: Calculate Taxable Portion KiwiSaver returns are partially taxable based on the Income Portion percentage (which represents the bond/cash allocation that generates taxable income).

Taxable Return = Gross Annual Return × (Income Portion % / 100)

Typical Income Portions by Fund Type:

• Conservative: 90% (mostly bonds and cash)
• Balanced: 60% (mixed allocation)
• Growth: 40% (equity-heavy)
• Aggressive: 20% (very equity-heavy)

Step 4: Calculate PIE Tax KiwiSaver funds are always taxed at PIE (Portfolio Investment Entity) rates based on the member's total annual income:

PIE Tax Rate = Based on total annual income:
  - 10.5% if total income ≤ $18,720
  - 17.5% if total income between $18,721 - $64,200
  - 28% if total income > $64,200

PIE Tax = Taxable Return × PIE Tax Rate

Important: The PIE rate is capped at 28%, which is advantageous for high earners who would otherwise pay 33% or 39% on investment returns.

Step 5: Calculate Net Return

Net Annual Return = Gross Annual Return - PIE Tax

Step 6: Calculate End of Year Balance

End of Year Balance = Balance After Contributions + Net Annual Return

Complete KiwiSaver Example

Scenario:

• Start of Year Balance: $50,000
• Employment Contributions: $6,010 (from earlier example)
• Voluntary Contributions: $5,000
• One-off Contribution: $0
• Total Annual Contributions: $11,010
• Investment Period: Balanced Fund (5-year historical return: 6%, std dev: 8%)
• Simulated Return for this year: 6.5%
• Income Portion: 60%
• Total Annual Income: $100,000 → PIE Rate: 28%

Calculations:

Step 1: Add Contributions
Balance After Contributions = $50,000 + $11,010 = $61,010

Step 2: Calculate Gross Return
Gross Annual Return = $61,010 × 6.5% = $3,966

Step 3: Calculate Taxable Portion
Taxable Return = $3,966 × 60% = $2,380

Step 4: Calculate PIE Tax
PIE Tax = $2,380 × 28% = $666

Step 5: Calculate Net Return
Net Annual Return = $3,966 - $666 = $3,300

Step 6: End of Year Balance
End of Year Balance = $61,010 + $3,300 = $64,310

Summary:

• Started with $50,000
• Added $11,010 in contributions
• Gross return of $3,966 (6.5%)
• After PIE tax: $3,300 net return
• Final balance: $64,310
• Effective net return: 5.4% (on the $61,010 balance after contributions)

Consolidation

If consolidation is enabled, the entire KiwiSaver balance is transferred to investment funds at the specified consolidation age. This models the common strategy of moving KiwiSaver into more flexible investment structures at retirement.

Process:

1. At Consolidation Age: The member's KiwiSaver balance is zeroed out.
2. Distribution: The full balance is allocated to investment funds according to the specified allocation percentages.
3. Ongoing: After consolidation, no further KiwiSaver contributions or returns are calculated for that member.

Formula:

For each active investment fund:
  Amount to Transfer = KiwiSaver Balance × (Allocation % / 100)
  Investment Fund Balance += Amount to Transfer

KiwiSaver Balance = 0

Detailed Consolidation Example:

Pre-Consolidation (Age 64):
- KiwiSaver Balance: $485,000
- Investment Fund 1 (Conservative): $120,000
- Investment Fund 2 (Balanced): $80,000
- Consolidation Age: 65
- Allocation: 70% to Fund 1, 30% to Fund 2

At Age 65 Consolidation:
- Amount to Fund 1: $485,000 × 70% = $339,500
- Amount to Fund 2: $485,000 × 30% = $145,500

Post-Consolidation (Age 65):
- KiwiSaver Balance: $0
- Investment Fund 1 Balance: $120,000 + $339,500 = $459,500
- Investment Fund 2 Balance: $80,000 + $145,500 = $225,500

Why Consolidate?

1. Flexibility: Investment funds can be drawn from at any age; KiwiSaver only after 65
2. Fee Management: Potentially lower fees in regular investment funds
3. Investment Strategy: More investment options and control
4. Withdrawal Control: Better control over withdrawal priorities and timing
5. Estate Planning: Different estate planning considerations

KiwiSaver Withdrawal Rules

Age Restrictions:

• Before Age 65: KiwiSaver funds are completely locked and cannot be withdrawn (except for hardship, serious illness, or first home purchase - but these are not applicable in the modelling).
• Age 65+: Full access to KiwiSaver balance for withdrawals.

Withdrawal Priority in Financial Model: When there's a cashflow shortfall, the model follows this sequence:

1. Savings Fund (above Cash Reserve)
2. Investment Funds (according to withdrawal priority)
3. KiwiSaver Funds (only if age ≥ 65)
4. Cash Reserve (last resort)

Important Notes:

• If the model needs to draw from KiwiSaver before age 65, it will fail or flag an error, as this violates NZ regulations
• This is why consolidation at age 65 is a common strategy - it provides earlier access to retirement funds if needed
• Some advisers model early retirement (ages 60-64) by using investment funds, with KiwiSaver and NZ Superannuation kicking in at 65

Investment Period Strategy for KiwiSaver

Similar to regular investment funds, KiwiSaver can have multiple investment periods with different strategies:

Common Lifecycle Pattern:

Ages 25-45 (Early Accumulation):
- Fund Type: Growth or Aggressive
- Higher returns (6-8%)
- Higher volatility (10-12% std dev)
- Focus on maximizing growth

Ages 45-55 (Mid-Career):
- Fund Type: Balanced
- Moderate returns (5-6%)
- Moderate volatility (8% std dev)
- Balance growth and stability

Ages 55-65 (Pre-Retirement):
- Fund Type: Conservative
- Lower returns (3-4%)
- Lower volatility (4-5% std dev)
- Preserve capital approaching retirement

Ages 65+ (Post-Retirement):
- Often consolidate into investment funds for flexibility
- If not consolidated: Very Conservative to preserve capital

Why Multiple Periods for KiwiSaver?

1. Age-Appropriate Risk: Reduce risk as retirement approaches
2. Locked-In Protection: Can't access until 65, so more risk when young is acceptable
3. Market Timing: Adjust for market conditions over career
4. Realistic Modeling: Reflects how KiwiSaver providers structure their lifecycle funds