As Kiwisaver money is invested, it must be making money - but for whom as Kiwisaver itself is not interest bearing?

Before we can answer your question as to how KiwiSaver can make money when it is not interest bearing,. like a bank term deposit for example, we need to explain the structure of a KiwiSaver Scheme.

In basic terms, every KiwiSaver scheme has a trustee who job it is to make sure that what is said in the legal documentation is being adhered to.  This trustee holds the money you, your employer and the Government contribute to your KiwiSaver.

In addition every KiwiSaver scheme has a manager.  It is important to understand that you are not investing in the manager and, unless they have been acting fraudulently, you will not lose your savings if the manager goes under.

Next, almost all KiwiSaver schemes have a number of funds that you can choose from.  As an example, look at the AMP KiwiSaver scheme which has 12 different funds which you can see here.

Each of funds invests in a different mix of cash, bonds, shares, property and other types of assets.

So if for example you were in the AMP Balanced Fund you would have your savings in 5% cash, 20% New Zealand bonds, 15% international bonds, 15% New Zealand shares, 35% international shares and 10% property. (These percentages can move around a bit depending on which type of assets the manager feels offers the best value).

Your money will be pooled with everyone else's who has invested in that particular fund.

Each of the investments can generate two types of return: income and changes in the value of the asset- and you hope that over time the value of the assets will go up and not down.  If they do, or it is generating income, then the value of the fund increases and your share of it increases.

KiwiSaver does not pay interest as this return is locked away until you retire (or buy your first home).  It is important to understand that the institutions that are promoting a KiwiSaver scheme or managing the funds, do not promise a particular rate of return.  You own your share of the assets in the fund and it is your risk as to how much the rate of return will be.

How do you know what the rate of return on your KiwiSaver fund is?

There are twp ways. The manager of the KiwiSaver scheme will publish on their websites, hopefully on a monthly basis, what return the fund has generated over the past month, three months, year, etc.

However, a more exact way is to look at what is know as the unit price. 

Most KiwiSaver schemes are what is know as "unitised".  Your dollar share of the fund is calculated by multiplying the unit price by the number of units you have bought in the fund.  Your statement from your KiwiSaver scheme will tell you how many units you have. Many KiwiSaver schemes publish unit prices, so you can tell whether your fund is doing well or not.

As with most things in life though, it is not quite that simple. 

Most unit prices are published before tax and before some expenses - they usually take into account the investment management fee, which is the largest.  So instead of adjusting the unit price down, what happens is that you get some units deducted from you balance in order to pay the tax and expenses that are not accounted for in the unit price.

I hope this helps you understand how KiwiSaver gives you a return when there is no "promised" rate of interest.