By Amanda Morrall
By necessity or choice, KiwiSaver contribution holidays have exploded in popularity with a 46% increase in the rate of retirement saving suspensions in the past 12 months.
According to Inland Revenue figures, the ranks of holidaying KiwiSavers had, by the end of February this year, swelled to 56,000.
Relative to the 1.65 million members enrolled, their numbers remain small (3.4%) however some analysts predict the numbers will grow further with the financial impacts of the Christchurch earthquake starting to hit home.
Default provider Tower Investment said household budgets squeezed by higher rents, increased prices for food and energy, and the add-on effect of 15% GST, would struggle to find room for retirement savings.
Regardless, Tower's chief executive Sam Stubbs said householders should think twice before hitting the pause button. He said long-term contribution holidays could exact a stiff price later on.
"KiwiSaver members contemplating active contribution holidays because household finances are tight will need to weigh up carefully the opportunity cost of potentially smaller retirement savings later on,'' said Stubbs.
The danger of going on a contribution holiday was getting away from the discipline of forced savings. For information on holiday contributions see Inland Revenue's KiwiSaver section here.
"If members do take a holiday, they should monitor their financial situations closely for when contributions can be resumed.
"KiwiSaver was designed to be `set and forget' for regular contributors, but that could backfire for members on active contribution holidays if they forget to resume saving for retirement when they can afford it again.''
Overall, KiwiSaver membership continues to expand but at its slowest rate since inception.
Net growth in monthly membership has reduced to 1.25% in the past three months from 1.42% in the previous three months.
Stubbs attributed the decline to a dip in the economy.
"It suggests that stronger KiwiSaver membership may be unlikely while recession grips our economy.''
KiwiSaver statistics as at 28 February 2011
Method of joining KiwiSaver Members Opt in via provider (active choice) 820,425 Opt in via employer 223,983 Automatically enrolled 605,935 Total membership (net of opt outs and closures) 1,650,343 Opt out 247,995 Closed 1 24,400 Active contribution holidays (includes active financial hardship holidays) 56,261
Demographics of KiwiSaver members
Age band Members 0-17 293,059 18-24 255,230 25-34 273,845 35-44 266,511 45-54 266,369 55+ 285,280 No information 10,049 1,650,343
Gender Members Female 851,418 Male 790,692 No information 8,233 1,650,343
Payments to providers
Financial year 2010-11
Employee deductions 106.0 744.6 Employer contributions 81.4 472.7 Voluntary contributions 0.7 9.0 Total member contributions 188.1 1,226.3 Member tax credit (MTC) 0.1 662.6 Kick-start 25.7 233.2 Fee subsidy 0.0 0.0 Interest 0.0 2.3 Total crown contributions 25.8 898.2 Total payments to providers 213.9 2,124.5
Payments to scheme providers
Figures are provisional. Inland Revenue is currently reconciling final payments.
Figures are gross and do not include payments refunded by providers to Inland Revenue.
Figures do not include KiwiSaver contributions held by Inland Revenue.
MTC figures represent all MTC paid to KiwiSaver providers. Figures exclude MTC paid to complying funds.