Having enough money when you hit retirement is something that should be thought about long before you near the age of stopping work. 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. However, sometimes unexpected things happen – such as an income decrease – and you decide you need to hit the pause button on your KiwiSaver contributions. A KiwiSaver contributions holiday, or savings suspension as it is now known, could be what you need to help you through this financial bump in the road. But a savings suspension requires careful thought. Canstar explores what you should consider before using a KiwiSaver savings suspension and why it’s no longer the extended holiday it once was.
What is a KiwiSaver savings suspension?
A KiwiSaver savings suspension is when employees take a break from making KiwiSaver contributions, which are made from deductions out of their pay. To be eligible for a suspension, you need to have been a KiwiSaver member for at least 12 months, according to the KiwiSaver website.
What are the new rules for pausing KiwiSaver deductions?
The way the contribution break works changed as of April 1, 2019. Before that date, KiwiSaver members were able to put their contributions on hold from three months up to a maximum of five years. However in 2019, along with the scheme undergoing a name change, the holiday period became more restrictive, and was limited to between three and 12 months.
Retirement income policy review triggered new KiwiSaver rules
The change to KiwiSaver savings suspension came on the back of the retirement commissioner’s 2016 review of retirement income policy.
As part of the review, the commissioner recommended that a name change from contributions holiday to savings suspension would remove the positive connotation associated with the word holiday (and hopefully make some people reconsider).
Then-acting retirement commissioner Peter Cordtz said that pausing contributions for up to five years would have a “significant impact and disrupt long-term savings”.
“Not only do members’ accounts not grow by their contributions, but they also miss out on their employers’ contributions, the government contribution of up to $521 a year, and returns from that money being invested. For many people five years is likely to be longer than necessary and a one-year renewal provides a prompt to reconsider their position and assess whether they can restart saving,” he said.
According to the KiwiSaver annual report, as of March 31, 2019, there were 2,934,268 KiwiSaver members, an increase of 3% on the previous year. And during the 12 months to that date, 17,857 members (0.6%) restarted contributions after putting them on hold, while 33,235 members (1.1%) started a contribution holiday.
Why would you use a KiwiSaver savings suspension?
Why would KiwiSaver members stop contributing to KiwiSaver, when it’s there to support your financial security? The reasons are many and varied: you might have some unexpected medical expenses to cover, for you or a loved one, or if you’re going on an actual holiday, not just a savings break, you might want a little extra cash for the time you’re away.
Can you use a savings suspension if you have been in KiwiSaver for less than 12 months?
If you’ve been in the KiwiSaver scheme for less than a year, you may still be able to take a break from contributions through an early savings suspension. This is when you take a break from contributing within the first 12 months of joining a scheme.
According to kiwisaver.govt.nz, you can apply for an early savings suspension if you’ve made a KiwiSaver contribution and you’re experiencing, or likely to experience, financial hardship. You’ll have to provide evidence of financial hardship for reasons outside of your control, and if they were within your control your application may not be accepted.
How do you apply for a KiwiSaver savings suspension?
If you’ve registered for a My KiwiSaver account – online tracking of your KiwiSaver – you can apply online for a savings suspension. Otherwise, you can print off and complete a request form on the Inland Revenue website, and post to the department’s address listed on the form. You can also call the Inland Revenue: 0800 549 472 (0800 KIWISAVER).
Make a plan to resume contributions after a savings suspension
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 must come back to reality. 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 to help you get into your first home.
While KiwiSaver data doesn’t show all the reasons why people are taking extended contribution breaks, the longer members are out of the KiwiSaver fund, the longer it will take them to build up adequate retirement savings.
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 if your KiwiSaver provider is the best fit for you? See how providers and funds stack up across fees, features and performance, using Canstar’s free KiwiSaver comparison tools.Compare KiwiSaver Funds here for free with Canstar!