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What Are My Employers Obligations If I'm On A KiwiSaver Contributions Holiday?

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Contributor:
Mary Holm
Mary Holm

Question:

I'm on a contributions holiday on KiwiSaver. I have a big mortgage so I took a holiday after my first year of investing. After a short period of not contributing, I recommenced 2 per cent contributions and luckily so did my employer.
 
I have now found out, to my surprise, that I am still officially on a contributions holiday and that my employer is under no obligation to contribute during this period. I have now changed employer and I'm hoping that the new employer will also contribute voluntarily.
 
It seems to me that the law really is an ass in this instance as it is not flexible enough for changing circumstances (my fortunes improved luckily). A five-year contributions holiday where an employer may choose not to match my contributions will make a big difference to my retirement savings.
 
Do you know if this is already a recognised problem and whether the IRD is actually trying to remedy it? I've also emailed the IRD but I have zero confidence in their call centre doing anything about it.

Answer:

Mary Holm: "A contributions holiday can't be cancelled once approved," says an Inland Revenue spokeswoman. "However, a member can restart contributions at any time ... The person just has to advise their employer they want to resume having deductions made.

"If they do tell the employer to resume making regular deductions, that in turn triggers the requirement for the compulsory employer contributions to kick back in."

There's nothing voluntary about it. As long as you are having deductions taken from your pay, your employer must contribute.

"In terms of a new employer," says the spokeswoman, "the application for a contributions holiday only applies to the employer named in the application for the contributions holiday. It has nothing to do with a new employer unless the person advises that new employer they are on a contributions holiday." So you should have no problems there.

Note, too, that anyone on a contributions holiday can still contribute lump sums whenever they want to. Also, an employer can continue to contribute even when their employee is not contributing. The whole thing is pretty flexible.

Inland Revenue adds: "As always if any of your readers wants more help regarding this, they can call the KiwiSaver call centre on 0800 549 472."

By the way, you did well to join KiwiSaver and contribute for a year, even though you had a big mortgage. The first year, with the kick-start, is such a good deal that everyone should do whatever it takes to be in.

Even after the first year, contributing to KiwiSaver is almost always better than paying extra off your mortgage. Obviously, though, if you can't make the required mortgage payments, a KiwiSaver contributions holiday makes sense. But it's great that you've been able to start contributing again.
 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.   
   

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