Shelley Hanna: Top up funds if you can afford to

Q. The company I have been working for has shut so I have lost my job. Who do I contact to put my KiwiSaver contributions on hold?

A. I am sorry to hear that you have lost your job. Your employer will have been passing on your KiwiSaver contributions on your behalf so now that you are no longer employed they will stop automatically. You do not have to notify anyone or apply for a contributions holiday.

I suggest you keep track of your contributions from July 1, 2011. If you have funds available (for example, if you do some short-term contract work) between now and June 30, 2012, you can top up your contributions so that they total $1042 for the 12 months. You will then be entitled to the full tax credits of $521 from the Government. Your employer contributions do not count towards the tax credits, only your own contributions.

Some proactive fund managers write to their clients suggesting that they top up their accounts before the end of June each year. This is a useful reminder for many investors who do not keep a close eye on their contributions. Someone on $30,000pa will only be contributing $600 each year to their KiwiSaver (at 2 per cent), so they will need to add a further $421 to get the full government contribution.

KiwiSaver is an effective form of savings for many people as it is generally locked in until age 65. You can only apply to withdraw some of the money in certain circumstances, such as a first home purchase, hardship or emigration.

A few people are very good at saving but most find it hard not to spend money as fast as they earn it. There are now thousands of New Zealanders with more than $10,000 in their KiwiSaver accounts. For many, this is the first time they have saved a substantial sum of money. Over the past 20 years people have become accustomed to fund their living expenses through borrowing. Personal credit card balances in New Zealand have increased from 3 billion to 5 billion over the past 10 years (source Reserve Bank).

Having financial assets in KiwiSaver will bring a new sense of financial security to many families who have been used to living from one pay check to the next.

I hope it does not take you long to find another job. When you do, you will be asked to fill out a KiwiSaver deduction notice (KS2) and select the rate at which you wish to continue your contributions to KiwiSaver. Your contributions will start up again, along with your employer contributions of 2 per cent.

Shelley Hanna is an Authorised Financial Adviser. 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. If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.