Is a KiwiSaver contribution holiday ever a good idea?

Canstar explores KiwiSaver contributions holidays – and whether it’s really the right move to make

Money, moolah, dough, cash, whatever you want to call it, having enough of it is a vital part of ensuring you will be secure in retirement. This is where KiwiSaver comes in, the Government scheme where you and your employer contribute to your retirement savings – or to your first house deposit. But along with having a savings plan, it’s important to know what you can do if you find yourself in financial strife and could do with a small savings break.

KiwiSaver contributions holidays may be just the ticket, but it requires some careful thought, first.

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What is a KiwiSaver contributions holiday?

A KiwiSaver contributions holiday is when employees take a break from making KiwiSaver contributions – which are made from deductions out of their pay. To be eligible for a contributions holiday, you need to have been a KiwiSaver member for at least 12 months, according to the IRD website. You don’t  need to provide a reason to take the contributions holiday, and you can put your savings on hold anywhere from three months, to five years. In some cases, Inland Revenue may agree to a contributions holiday of less than three months.

You can take an unlimited number of contributions holidays and can renew contributions at any time. However, if the KiwiSaver member makes another change – to start or stop contributions – within three months of the last change, the member’s employer has to agree. Employers must resume compulsory employer contributions again when the employee has restarted their own contributions from their pay.

Why would you take a contributions holiday?

This all sounds well and good, but why would KiwiSaver members take a savings break, when the whole idea is to work towards future financial security? There are many reasons why people may choose to take a contributions holiday. If you’re off on an actual holiday – not just a savings one – you may want to have a little bit of extra cash for the time while you’re away. Or, you might have some unexpected medical expenses to cover, for you or a loved one.

There are almost 5% of KiwiSaver members currently taking a contributions holiday, according to Inland Revenue Statistics. In August 2017, 132,5 thousand total 2.8 million KiwiSaver members, 4.7%, are taking a break from making contributions. This is roughly the same number – and the same percentage – as in September 2016. A year ago, there were 127.8 thousand members on contributions holiday, 4.7% of the total 2,688,000 membership, at the time.

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Been in KiwiSaver for less than 12 months?

If you have been in the KiwiSaver scheme for less than a year, you may still be able to have a break from making contributions through an “early contributions holiday”. But Inland Revenue will only grant this for KiwiSaver members who are experiencing – or likely to experience – financial hardship. To be eligible for the early contributions holiday, you have to provide evidence of this financial hardship. And, if the hardship has happened as a result of something within your control, don’t be surprised if Inland Revenue rejects your application. The length of an early contributions holiday will be worked out between you and Inland Revenue; the default term is three months. Depending on your circumstances, this term may be extended.

How do you apply for a contributions holiday?

If you’ve registered for a My KiwiSaver account – online tracking of your KiwiSaver – you can apply online for a contributions holiday. Otherwise, you can print off and complete a contributions holiday request form, on the Inland Revenue, and post to the department’s address listed on the form. You can also call the Inland Revenue: 0800 549 472 (0800 KIWISAVER), or 04 978 0800 if calling from a cellphone.

Make a plan to resume contributions after a break

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Being able to take a break from KiwiSaver contributions can be a great way to help you manage your finances, when unexpected expenses come your way. But, as nice as holidays are, eventually you come back to reality, right? Don’t lose sight of why you joined the savings scheme to begin with; KiwiSaver is there to help with financial security in retirement, or even to help you get into your first home.

According to Inland Revenue statistics, the majority of those on KiwiSaver contributions holidays (123,020 out of 132,500), have been on the savings break for more than 13 months. While the data doesn’t show all the reasons why people are taking the extended breaks from contribution, the longer members are out of the KiwiSaver fund, the longer they wait to keep building up retirement savings.

A snapshot of KiwiSaver contribution holidays, as at August 2017:

  • 9,480 members were on contributions holiday for 12 months or less, up from 9,430 in September 2016.

  • 6,430 members were on contributions holiday for 13 months or more, but not exceeding 24 months, up from 6,230 in September 2016.

  • 3,720 members were on contributions holiday for 25 months or more, but not exceeding 36 months, up from 3,660 in September 2016.

  • 1,250 members were on contributions holiday for 37 months or more, but not exceeding 48 months, up from 1,180 in September 2016.

  • 330 members were on contributions holiday for 49 months or more, but not exceeding 59 months, down from 350 in September 2016

  • 111.3 thousand members were on contributions holiday for 60 months, up from 106.9 thousand in September 2016.

Take the time to review your KiwiSaver fund

While you’re thinking about getting the most from your KiwiSaver scheme, why not put a note on your to-do list to check your KiwiSaver provider is the best fit for you?  In 2017, Canstar rated and reviewed 16 KiwiSaver providers with a total of 19 KiwiSaver schemes and 129 funds across six fund types: aggressive, growth, balanced, conservative, defensive and cash. See how providers and funds stack up across fees, features and performance.

Read Canstar's KiwiSaver report

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