Helen Twose

Helen Twose on KiwiSaver and you

Kiwisaver: Take a flexible contributions holiday

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KiwiSavers who have taken a break can resume pay deductions any time by simply telling their employer.

KiwiSaver holidays can be anything from three months to five years. Photo / APN
KiwiSaver holidays can be anything from three months to five years. Photo / APN

Last year I left New Zealand with plans to settle in Europe for the foreseeable future.
Before I left I started on a five-year contributions holiday.
Unfortunately due to unforeseen circumstances I returned to New Zealand at the end of last year.
At this stage I started employment and started recontributing to my Kiwisaver fund.
When I contacted the IRD to end my contributions holiday I was informed that it was not possible.
Given that I am still contributing to the fund while still technically on holiday will this prevent me from taking advantage of the first-home subsidy or any other subsidies provided by the government?
Or are there any other negative points you are aware of due to my situation of being stuck on a contributions holiday whilst still contributing?

You are one of about 110,000 people who are currently on a KiwiSaver contributions holiday.

Once you've been in KiwiSaver for a year it is possible to arrange to take a break from making contributions to your KiwiSaver funds.

You can take one before the 12-month mark but you will need to prove genuine financial hardship to be eligible.

Taking a contributions holiday means your employer will also stop making contributions and you will no longer get the government chipping in up to $521.43 through the member tax credit.

A contributions holiday can be anything from three months to five years, with no limit to the number of times you take a holiday.

I put your question to Fisher Funds operation manager Vedran Babic and this was his response:

"I assume that since you're still on a contributions holiday that you are contributing to KiwiSaver by making direct contributions to your KiwiSaver account via your scheme provider.

"If you would like to resume contributions from your pay via your employer, it should be as simple as telling your employer that you no longer wish to be on a contributions holiday.

"Information on the back of a contributions holiday form states that you can ask your employer to restart deductions from any income source at any time while you are on a contributions holiday."

So, it seems you can restart your regular contributions and employer contributions by letting your new boss know you'd like to end the contributions holiday and begin deducting KiwiSaver directly out of your pay.

This means you should also be in line to get the benefit of the member tax credit.

"I'm sure you are aware of the annual member tax credit contribution from the government of up to $521.43 a year," said Babic.

"As long as you're contributing at a rate of $20 per week or more, you will be eligible for the full member tax-credit entitlement.

"And if you're not contributing at this rate, you always have the option of topping up your KiwiSaver account before the end of the KiwiSaver year (June 30)," Babic said.

Now, if you had been making some voluntary contributions, that is, paying money into your KiwiSaver account directly rather than through your wages, since you've been back in New Zealand you may already be eligible to receive some or all of that annual member tax-credit payment.

Another downside to taking a contributions holiday is that it can push out the date you can access your KiwiSaver to put towards your first home.

After you have been in KiwiSaver for at least three years you can tap your savings, your employer's contributions and any investment returns to put towards buying your first home.

The Government $1000 kick-start and member tax credits can't be touched.

Lower-income KiwiSavers can also access the first home deposit subsidy, administered by Housing New Zealand, to help make their first steps up the property market ladder.

"One of the requirements of the first home subsidy is that you must contribute at least 3 per cent of your income to KiwiSaver for at least three years (so the minimum first-home deposit subsidy is $3000, increasing to $5000 after five years)," said Babic.

"So if you're on a contributions holiday this period is generally not counted towards the three to five years.

"The other downside to being on a contributions holiday while you're employed is that you miss out on employer contributions.

"While the employer contributions may not seem significant now, they could be worth a lot more if they remained invested for 20, 30 or 40 years."

Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the Herald's panel of industry players, email Helen Twose, helentwose@gmail com.

- NZ Herald

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