We all go through difficult financial times, when bills and commitments increase, and we wish there was a way to relieve some of that financial pressure.
Luckily with KiwiSaver, there is an opportunity to pause your contributions for a while, depending on how long you have been in KiwiSaver.
What do you need to know about a Savings Suspension and what are the risks? In this blog, we give you a brief overview of the main points and risks, to help you navigate your decision.
- What is a Savings Suspension?
A Savings Suspension is when you stop your employee contributions to KiwiSaver for a period. - How long do I have to be in KiwiSaver, before I can take a break?
If you have been in KiwiSaver for a year or more, you can ask for a suspension through your employer. If you have been in for less than a year, you will need to apply for a suspension from IR and prove financial hardship. - How long can I take the Savings Suspension for?
You can suspend your contributions for three months to a year, but you can take more than one break, and they can be back-to-back. - Will my employer keep contributing?
No, if you suspend your contributions your employer will too, unless your employment agreement covers this situation. - Can I still make contributions to my KiwiSaver scheme even though I am on a Savings Suspension?
Yes, you can still make direct contributions to your KiwiSaver scheme even if you are on a Savings Suspension. If you cannot afford to make the minimum contribution required by the KiwiSaver Act, then making some smaller contributions voluntarily during the Savings Suspension period is a way to still save for your retirement, just at a lower amount. - Will I receive the Government Contribution?
Yes, you will receive the annual Government Contribution if you contribute at least $1,042.86 between 1 July and 30 June each year.
What should I consider before I take a Savings Suspension?
Before you decide to take a break, there are a few points you will want to consider:
- Investigate whether you can reduce, not stop your savings. If you are currently contributing 4% to KiwiSaver, try dropping to 3%.
- Save something if you can. While you might stop your employee contributions, set up a voluntary, automatic payment instead, for a smaller amount. By keeping your savings going, you can rest a little easier, as you are still ‘chipping away’ at your goals.
- Make a commitment to start again. If you stop altogether, set up an automatic payment 6 months from now. Make this $100 or $200 per month, to begin with, and increase this 6 months later. Then start up your employer contributions again.
- Do some homework and know the long-term consequences of stopping. Try putting this scenario into the Sorted KiwiSaver Retirement Calculator. KiwiSaver calculator » Sorted
Example
A person aged 45, retiring at age 65, with a balance of $70,000 today. Their pay is $50,000 a year before tax, and they contribute 3% to KiwiSaver and so does their employer. They are in the Growth Fund.If they don’t stop saving over the next 20 years, they may have just over $200,000 saved by age 65.
If they pause for one year, their balance would be around $196,000 by age 65.
If they pause for two years, their balance would be around $191,000 by age 65. *
*Please note, these numbers are not guaranteed and do not constitute financial advice. Your situation will be different, and we recommend you seek independent advice from a licensed financial advice provider.
While we don’t want to stop our savings, sometimes we need to focus on paying our bills, or clearing some high-cost debts. At those times, taking a Savings Suspension for a short time can give the ‘breathing space’ we need financially and mentally.
Just remember, there will always be an excuse to ‘start again tomorrow’, and before you know it, tomorrow is two years from now.
The Savings Suspension is a nice KiwiSaver feature to have and can relieve some pressure when we need this most. We should have a plan to start again, even before we decide to stop, and we need to understand the impact stopping can have on our savings if we delay restarting contributions.
