Contributing to your KiwiSaver account is a great way to plan for the future, but life is complicated, and sometimes you might feel like making contributions just isn’t possible. Unplanned expenses and debt can get in the way of the best laid saving plans.
“In times of financial hardship there is a process for taking a break from making KiwiSaver contributions,” says AdviceFirst adviser Steve Dando. “It’s called a savings suspension and means automatic deductions from your income are temporarily stopped.”
Anyone who has been a KiwiSaver member for 12 months or more is eligible for a suspension without providing any reason. If you’ve been a member for less than 12 months you can also apply, but you have to prove you’re struggling to make the contributions. Savings suspensions can last from between three months to a year, depending on what term is appropriate for you.
“Pausing your KiwiSaver contributions has short-term benefits, but there are disadvantages that you should consider,” says Steve. “First and foremost, when you stop contributing, your employer does the same, so you’re missing out on this important benefit. Also, an investment is only as good as its growth over time. It’s important to recognise that when you temporarily stop your contributions, you’re also halting that growth.”
Savings suspension might also mean you’re missing out on government contributions. KiwiSaver members who make contributions to their fund get each dollar matched with 50 cents from the government up to a maximum of $521.43 per year. To reach the full contribution, you need to have put at least $1042.86 in for the year. To ensure you don’t miss out on what is essentially free money, you would need to make voluntary contributions outside the suspension.
“One other reason people cite for pausing contributions is that they’re attempting to find the best time to invest, in the hopes they might dodge any market volatility,” says Steve. “Timing the market is so difficult as to be essentially impossible. A greater predictor of growth is time spent in the market, not good timing. Members who keep contributing continue to grow their balance and take advantage of returns.”
Steve says it’s important to be aware of all the pros and cons before going ahead with a savings suspension; a small amount of knowledge and planning can make a big difference. If you are considering a KiwiSaver savings suspension, contact an AdviceFirst adviser on 0800 438 238 or letstalk@advicefirst.co.nz and they can help you decide if it’s the right option for you.
