Baby grand, what about KiwiSaver

Q. What happens with my KiwiSaver contributions and my employer's contributions while I am off on maternity leave from next month? I plan on taking 12 months' maternity leave and I will not be getting paid by anyone other than receiving the 14 weeks' paid maternity leave from the Government.

A. Congratulations on your upcoming baby's arrival! This is an exciting time for you.

You are the first reader to ask me this interesting question on the topic of paid parental leave. Basically, you can decide whether you would like KiwiSaver contributions to continue while receiving paid parental leave, but there will be no employer contributions (because your employer will not be paying you).

Paid parental leave is administered by Inland Revenue. In order to receive the 14 weeks' entitlement, you will need to fill out the IR880 form (you can download this from the IRD website). You may already have done this. This is a six-page form including four pages of information on paid parental leave entitlements and two pages that you (and your employer) need to fill out.

A question about KiwiSaver is on page two of the form . If you wish to continue contributing to KiwiSaver out of your paid parental leave entitlement, you will need to download and fill out Inland Revenue's KS2 form. It is the same form people wishing to join KiwiSaver should fill out.

I spoke to Inland Revenue and was told the IR880 and KS2 forms should be sent in together. If you have already submitted the IR880 form but would like your KiwiSaver contributions to continue while you receive paid parental leave, send it to Inland Revenue with a covering letter (and follow up with a phone call, just to be sure).

Do you want your KiwiSaver contributions to continue? The maximum paid parental leave entitlement is $475.16 per week net, for 14 weeks. For those who have been earning more than the minimum wage, this will mean a drop in income.

Of course, it is a lot better than nothing, which is what working mothers got before July 2002 when the entitlement was first introduced. But there will be big budget adjustments for you, especially as you plan to take another 38 weeks unpaid leave after your entitlement ceases.

During those 38 weeks there will be no money going into your KiwiSaver, unless you are able to make voluntary payments from any savings.

You will need to talk to your KiwiSaver provider directly if you would like to make direct regular or occasional payments, because they are likely to have a minimum threshold. If money is not too tight in your household, it may be worth paying in enough to get the full Member Tax Credits in July next year. You will need to personally contribute $1042 between July 1, 2012, and June 30, 2013, to get $521 in such credits from the Government.

It may be hard to work out a budget right now because you won't know exactly how much you will spend while you are at home with your new baby. Saving for retirement may have to go on the back-burner for a while so that you can enjoy this new and special time.

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 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