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Bringing a contributions holiday to an early end
 
Q.           I applied for a 12 month contributions holiday just before Christmas as my wife and I were struggling to make ends meet. To be honest I don’t think it has made much difference and I didn’t realise that the employer contributions would stop as well. Can I restart my contributions now or do I have to wait till the 12 months is up?
 
A.            The contributions holiday aspect of KiwiSaver is appealing for those who would like to join the Scheme but are not sure if they will manage without 3% of their wages. Anyone can apply for a contributions holiday once they have been in KiwiSaver for a year (earlier if they are experiencing hardship).   All they need to do is fill out a KS6 form (in hard copy or online through the IRD ‘My KiwiSaver’ login) and select a term from 3 months to 5 years. 
 
According to Inland Revenue, “A contributions holiday cannot be cancelled once approved, however, members may restart contributions while a contributions holiday is in place.”  
 
It should be easy to get your contributions started again - all you need to do is tell your employer. Every workplace is different so if you don’t have direct contact with your employer (if you have a head office in Auckland for example) then it may be easier to fill out a KS2 form and get it to them by fax or mail, or send an email. Both these options have the advantage of putting your request in writing. Check your next payslip to make sure that contributions have re-started. If they haven’t, contact them again with a reminder. If after two pay cycles they still haven’t resumed then contact Inland Revenue for advice.
 
Someone who takes a long contributions holiday (say 5 years) can re-start and then stop their contributions multiple times during that period, but if it is less than 3 months since the last change then their employer has to agree. 
 
If you re-start your contributions early you will still get a letter from Inland Revenue one month before your contributions holiday is due to expire, asking if you want to renew it. By then you will have been back contributing for several months and if you are happy with the situation you can just ignore their letter.
 
According to Inland Revenue’s annual report on KiwiSaver, as at 30 June 2012 out of nearly 2 million members there were 83,370 members on a contributions holiday – just 4%. Most people I speak to are positive about KiwiSaver and like you don’t find that the deduction makes much difference to their budget overall. 
 
With the KiwiSaver minimum contribution going up to 3% from 1 April this year, someone earning $35,000 per year will now be contributing around $20 per week (with their employer contributing a similar amount). This increase means a lot more members will be eligible for the full tax credits of $521 per year, with a pleasing rise in account balances down the track. 
 
Anyone considering a contributions holiday should first tackle their budget to see if improvements can be made, rather than miss out on the benefits and top ups of KiwiSaver. Everyone has different strengths and weaknesses when it comes to budgeting. Small savings in petrol, electricity and supermarket shopping can make a big difference. Go to www.familybudgeting.org.nz for a very good online budget and lots of ideas to help make ends meet.