KiwiSaver Questions

Pay off Mortgage or contribute to KiwiSaver?

Written by National Capital
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Recently, BusinessDesk received an email from a reader seeking financial advice. It turns out her stepfather had some questionable suggestions for her and her husband. The reader and their husband earn around $150,000 pre-tax, have a huge mortgage of $600,000 and currently cannot contribute more than 3% to their KiwiSaver.

According to her stepfather, they should channel their KiwiSaver contributions into paying off the mortgage instead, arguing, “in the long run, loan interest is more than what we make off the employer/government contributions plus investment gains”.

Curious about the validity of this advice, BusinessDesk decided to crunch some numbers, and so did we. Assuming a 30-year repayment period, with ANZ's average mortgage rate of 6.49%, and considering KiwiSaver funds usually yield an annual return of 7%, the couple would accumulate a staggering $410,567.20 after three decades. Even in a more conservative fund offering 3% annual returns, they would still amass $206,783.21. However, when they used ANZ's mortgage calculator, it showed that they would only save $115,389 by paying off the mortgage which pales in comparison to the potential gains from KiwiSaver.

But where does this extra money from KiwiSaver come from exactly?

Here's the deal: when you focus solely on the mortgage, you're left to foot the bill by yourself. However, if you choose to contribute to your KiwiSaver, you not only put in your own money, but also receive contributions from the government (up to a certain limit) and your employer. You essentially have two other team members backing your financial journey.

But wait, there's more.

As great as this sounds, there are still two major elephants in the room left to address; the choice of fund, and contribution rate. KiwiSaver providers usually offer at least five basic funds, ranging from conservative to high growth, with average returns ranging from 3% to 7%. Similarly, KiwiSaver allows you to contribute 3%, 4%, 6%, 8%, or 10% of your income, with a minimum pre-tax contribution of 3% from your employer. When you maximize both the fund selection and contribution rate, the differences in outcomes can be astonishing.

Screen Shot 2023-07-12 at 11.13.54 AM-1
1 Each of the five categories represents the potential gains based on your contribution; 3%, 4%, 6%, 8%, 10%. Likewise, the individual coloured bars represent the potential gains based on the return of the fund you choose to invest your KiwiSaver in.
Screen Shot 2023-07-12 at 11.15.14 AM
2 Calculations of returns and gains based on 30 years of compounding.

According to the numbers, if you go all-in and maximize your contributions while investing in the growth fund, you could potentially amass over $900,000 in gains after 30 years. That's an astronomical figure that completely overshadows any savings you would get from paying off your mortgage.

Alas, this highlights just how crucial it is to understand the role KiwiSaver plays in your future. Considering that small changes compound to huge differences later in life, it is paramount to get on top of your KiwiSaver today.

Consider doing a KiwiSaver Health Check with us. It takes 5 minutes to change your future!


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The right KiwiSaver fund will make a big difference to your KiwiSaver payout.

Spending 10 minutes to complete our KiwiSaver HealthCheck form may be the most important thing you can do for your KiwiSaver account right now. 

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