Considering the worth of holiday

QUESTION:        I joined KiwiSaver when the minimum was lowered to 2%.  My wife has just stopped working to have a baby and we are now living on one wage.   Should I put my contributions on hold?

Answer: You certainly can put your contributions on hold.  Anyone can apply for a ‘contributions holiday’ after they have been a member of KiwiSaver for at least 12 months.  The minimum was lowered from 4% to 2% in April 2009 so I am guessing that you have been a member for over two years.  (For those members who have been in KiwiSaver for less than 12 months, they can apply for a contributions holiday in the case of hardship).

Inland Revenue has a form KS6 which you will need to fill out (in hard copy or online) and return to them to process.  They will inform your employer.  You can suspend your contributions for any period from 3 months to 5 years.  You can also extend your contributions holiday if you need to at the end of the period that you choose.  Once you have started your contributions holiday, your employer will not be required to make any contributions.  You can still make voluntary contributions if you wish to. 

Adjusting to life on one wage is not easy, especially with all the costs of a new baby.  If your KiwiSaver contributions are making a difference, then taking a contributions holiday is a good idea. 

But if you are managing on one wage without going into debt, then I suggest you keep your KiwiSaver going.  For the purpose of this exercise I will assume you are earning $60,000 pa gross.  On this salary you will be contributing $100 to your KiwiSaver each month.  Can you adjust your household spending so you won’t miss that amount? 

Your employer will be contributing at least 2% as well, and you will also be entitled to $521 from the government each year in ‘tax credits’.  So by keeping your KiwiSaver going you will get $1721 from your employer and from the government over 12 months, which you won’t get if you take a contributions holiday for that period. 

I hope this information will help you come to a decision.  This is a special time in your lives and you want to enjoy it as much as possible.

As published in the Hawkes Bay Today 13 September 2011

Shelley Hanna is an authorised financial adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide specific or personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.