To prepare for retirement, we save and invest a small portion of our income to our KiwiSaver account regularly. While it makes saving easy, sometimes financial hardship can mean we need to take a break from our regular contributions into KiwiSaver. This is made possible by a ‘savings suspension’.
On a savings suspension, your income will not be automatically deducted to be put into your KiwiSaver account. This temporary break could be beneficial for those experiencing a financial hardship, but suspending your contribution would cause you to miss out on more money in your KiwiSaver account, so it’s a decision not to be taken lightly.
Are you eligible for a savings suspension?
KiwiSaver members who have made regular contributions for at least 12 months may take three to twelve months of savings suspension. You do not have to provide a reason for wanting to take the contribution break and there are also no limits on the number of savings suspensions you can take.
Those wanting to take a savings suspension but have not been a member for more than 12 months might still be eligible to apply, if they are experiencing or likely to suffer from a financial hardship. Three months of suspension is usually the default length but Inland Revenue will work with you to determine what is best.
Is going on a savings suspension the right thing to do?
There is nothing wrong with having the option for a contribution break, but it should only be temporary. When you take a savings suspension, your employer does too, meaning that they don’t have to make the required contribution to your KiwiSaver account during your break. Though you can still manually put money in your KiwiSaver account, taking a savings suspension could mean that you are also missing out on the government contributions.
If you are earning $60,000 annually and contributing the minimum of 3% to KiwiSaver, you could miss out on around $2,321 of government and employer contributions (before tax), when you take a savings suspension for a year. You would usually have your contribution of $1,800 along with employer and government contributions to be invested into your KiwiSaver account, but taking a savings suspension would stop your investments from growing.
Savings suspension to time the market?
Just because there is an option for you to take a break from contributing to KiwiSaver, it doesn’t mean that you should take it. Some people might want to suspend their contributions temporarily as they could be waiting for the best time to invest in KiwiSaver, but we know that the time in the market is more important than timing in the market. So it is better to regularly save and invest in KiwiSaver rather than waiting for the perfect time in the market as you could miss out on all of the smaller gains, which adds up over a long period of time.
How we can help
Missing out on investment returns along with employer and government contribution is not something that anyone would want. But we understand that sometimes taking a savings suspension could be necessary when you have large unexpected expenses to cover.
There are options to reduce your contributions to KiwiSaver, and that may be a better idea for you rather than not contributing at all. Before determining if this would be a good option for you, we need to get to know you first. We need to understand your situation, investment timeframe, the amount you would need, etc. From this, we will be able to build your KiwiSaver investment strategy to help you reach your financial goals.
It is important to be certain, as taking a long break from saving or investing could disrupt your long-term savings plan, especially if you are saving for retirement. First step is to submit our KiwiSaver HealthCheck to sort out your KiwiSaver investing plan.