Employees contribute a minimum of 3% of income to KiwiSaver. Can you stop contributing if your budget is tight, even if you still have a job?
Yes, you can. You can take a contribution holiday, between 3 months and 5 years. At the end of the holiday, you can apply for another. Is that a good idea long-term, given that the whole purpose of KiwiSaver is to build up a retirement nest egg.
You can only apply for a holiday once you’ve been contributing to KiwiSaver for 12 months. While you’re not contributing your employer also won’t be contributing, so if you need to use this option, tailor the length of the holiday to your changed circumstances. If you’re having a baby and you’ll be down to one income for a year, then a 12 month holiday makes sense. Don’t take a 5 year holiday just because it’s available.
The Member Tax Credit (MTC) from the Government is based on your own contributions. If you stop contributing, then no MTC for you. However, even while on holiday, you can contribute outside of the payroll. $20 per week will still get you the full MTC.
If you’re self-employed, but on PAYE, then you’re paying both the employee and employer contributions. After 12 months you can take a long-term holiday, then just pay $20 per week, so you’ll still get the MTC.
Remember, the longer your KiwiSaver takes a holiday while you’re working, the fewer holidays you’ll be having when you retire.
Mark Lynch is a Registered Financial Adviser. His Disclosure Statement is available free upon request. Any comments in this article are the opinion of the writer and should not be construed as financial advice.