Site Designed By Airnet
A break from saving is an option

Q. Your recent column about teachers in the Government super scheme joining KiwiSaver applies to my situation as well. I would like to join KiwiSaver to get the benefit of the ‘kickstart’ and MTC but 3% of my salary is too much on top of what I already pay into SSRSS.  Can I set up a direct debit directly with the fund manager for just $20 per week, rather than have 3% coming out of my salary?  I want the employer contributions to keep going into the SSRSS scheme.

A.         I am sorry but all employees who join KiwiSaver - whether by opting in through their employer or signing up directly with a fund manager - must have their contributions deducted by the employer. If you are earning $80,000 per annum, at 3% you will be contributing $2400 per year into KiwiSaver. If you have other commitments such as a large mortgage this may seem a lot of money. You only need to contribute $1042 to get the full MTC top up of $521 per year from the Government, so you will be contributing $1345 per year or $26 per week more than you need to for this purpose.
 
Looking on the bright side, you will have a larger nest egg when you turn 65. I do not meet many 65 year olds who say they have saved too much. In fact, I can’t think of a single one. However, I do regularly talk to people who tell me that they wish they had saved more, and had not spent so much on that new car, clothes, electronic gadgets, cosmetics, entertainment, fitness equipment, furniture – the list goes on. If you don’t believe you can manage on $2400 less per year talk to one of our local budget advisers – they are willing to advise anyone who wants help with their budget and their service is free.

I asked Inland Revenue if they have a solution to your problem. A spokesman replied: “If you're an employee, once you've been a member for 12 months you can take a break from saving - this is called a contributions holiday. If a member makes voluntary contributions while on a contributions holiday they would be eligible for MTC based on those contributions.”
Applying for a contributions holiday is easy – you can apply online through your IR login if you are registered for their online services (worth doing) or download a KS6 form from the IRD website. A contributions holiday can be any length of time from 3 months to 5 years. 
You will receive a contributions holiday notice from Inland Revenue – keep this letter safe, you will need it if you change jobs. If you have given IRD the name of your employer they will notify the employer that you are now on a contributions holiday. You can apply to extend your contributions holiday when it nears the end, so you could start with 5 years and renew it every 5 years until you turn 65 and are no longer required to contribute.  You can also cancel your contributions holiday and resume contributions from your salary at any time by notifying your employer that you wish to opt back in. 
 
Once you are on a contributions holiday you can set up a direct debit with your KiwiSaver fund manager. You will need to contribute the equivalent of $20 per week to your KiwiSaver account to get your full entitlement of MTC. Usually when someone is on a contributions holiday their employer contributions stop as well. However, as your employer contributions are going into your SSRSS scheme this will not be a problem for you. 
 
I would not be surprised if after 12 months of contributing to both schemes you realise that you have adjusted your spending and you do not need that contributions holiday after all.
 
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. 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