Taking a break from KiwiSaver

Anyone who has been a KiwiSaver member for at least 12 months can apply for a contributions holiday.

I have been contributing to KiwiSaver through my job for the past five years. I have reduced my working hours this year because I am studying, hoping that this will lead to better prospects in the future. Money will be tight this year so I want to opt out of KiwiSaver. How do I do this? Will my employer contributions also stop?

What you are talking about is a contributions holiday. The term 'opt out' is only used for employees who are signed up to KiwiSaver when they start a new job but decide they do not wish to be in the scheme.

They are able to opt out within the first eight weeks and any contributions are refunded to them.

You have been a member for the past five years so opting out is not for you. But anyone who has been a KiwiSaver member for at least 12 months can apply for a contributions holiday.

Someone who has been a member for less than 12 months can also apply for a contributions holiday on the grounds of hardship.

You will need to apply to Inland Revenue if you would like a contributions holiday.

You can apply online (you need to register for myIR) or download the KS6 form from the IRD website.

You can select any period from three months to five years. As you have been a member for more than 12 months, approval is automatic.

You will be sent a notice which you should keep to show your employer, or any future employer while you are on the contributions holiday.

If you select a shorter period and then need to extend it, you can apply to do this. If you select a longer period but then wish to resume your contributions earlier you can do this too.

The bad news is that if you take a contributions holiday, your employer is no longer obliged to make their contributions to your KiwiSaver.

Depending on what you earn, it's likely you will also miss out on some of the annual Member Tax Credits (up to $521.43) that the Government puts into the account of every qualifying member in July each year.

Are you sure you can't keep your contributions going? Remember that your contributions won't be as much if you are working part-time. If your hours are cut in half, your KiwiSaver contributions will be cut in half too.

Someone earning $40,000 per annum will be contributing around $23 per week to their KiwiSaver, at the minimum contribution rate of 3per cent.

If your income drops to $20,000 per annum, your contributions will be around $11 per week. Is there room for that in your budget?

It is always difficult adjusting to a drop in income. Have you worked out a realistic budget for your new situation?

Try the useful Money Planner tool on the Sorted website. There is also a 'Sussed for Study' checklist on the StudyLink website.

If you prefer getting help and advice from a real person, talk to someone at your nearest Budget Advisory service. Their service is free. They will help you work out a budget and also give you information on any benefits you may be entitled to.

- Shelley Hanna is an authorised financial adviser (FSP12241). Her disclosure statement is available on request, free of charge, by calling (06) 870 3838, or see peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz.