By Amanda Morrall

Been thinking about your retirement savings sitting in your KiwiSaver account, tantalisingly close but just out of reach? Watching your balance take the hits over the past 12 months, and wondering how easy it’d be to just opt out of the scheme completely or stop contributing?

Fair enough - KiwiSaver has been a bumpy road these past few years, even more so than usual. Both share (aka equities) and bond markets took a nosedive in the spring of 2022, putting the biggest dent in most KiwiSaver balances since the Covid-19 pandemic first struck. And markets have been on a slow and at times slippery road to recovery ever since.

Things were starting to improve in early 2023 when - boom - the North Island was savaged by one of the worst floods, followed by an unprecedented severe cyclone, to hit our shores in many years. Economically, it will hurt. For those already watching their savings slide, damage to cars, homes, and personal property was another punch to the gut. Yes, there’s help for the insured, but payouts can be slow, and excesses high.

And with a high number of Kiwis living paycheck to paycheck, the pain is absolutely real. We get it. By law, you're unlikely to be able to opt out of KiwiSaver after 8 weeks of being enrolled (see the IRD website for more details). But there are obviously other options that can be explored.

Raiding the KiwiSaver?

You may think the cure is to (temporarily) raid your nest egg. But, it pays to think twice. Financial hardships in KiwiSaver are, by law, reserved for the worst-case scenarios. You can’t just withdraw your funds at will. Your KiwiSaver provider and their independent supervisor have to approve it, and they don’t take hardship requests lightly. There are fairly strict criteria both must follow. Read more about the conditions and criteria for hardship on our FAQ section here or visit the IRD website here.

Hardship claims in KiwiSaver can sometimes be avoided. Debtfix, which handles financial hardship situations on behalf of Simplicity, works with our members to explore other options, including debt management and budgeting advice.

Another oft-searched option is something called a KiwiSaver savings suspension. This allows you to put your contributions on hold temporarily. However, it also means your employer stops paying into your KiwiSaver account while you’re not contributing. And unless you still make $1,043 of direct contributions to your KiwiSaver account in a year, you could lose the free $521 Government contribution too. 

Depending on how long your suspension is (and whether you still contribute the minimum required to qualify for the govt contribution), it can significantly impact your life savings. On the other hand, it keeps your existing funds invested and frees up money when you need it most. What you would pay into KiwiSaver ends up back in your pocket - providing temporary cash flow relief. If you’ve been in KiwiSaver for more than a year, you don’t need to explain why you’re taking a savings suspension. If you’re less than a year into KiwiSaver, you’ll need to provide evidence of financial hardship to take the break.

Before you entertain the option of either a financial hardship withdrawal or a savings suspension, ask yourself these five important questions:

1. Are you confident that you’ve done everything possible to reduce unnecessary spending, including reviewing and streamlining your finances?

2. Have you considered financial restructuring (loans, mortgages, credit cards) to provide some financial relief?

3. Have you considered lowering your contribution rate (if it is above the minimum mandatory of 3%) to provide more liquidity (cash) ahead of taking a savings suspension?

4. Do you understand the extent that putting your savings on hold will lower your retirement savings? Sorted.org has a KiwiSaver calculator that can help you understand long-term savings projections, with and without suspension options.

5. Do you know your current rate of contribution and fund type? Do you know much you’re on track to have in retirement? Review your annual statement to find out.

Not everyone can avoid applying for financial hardship or a savings suspension, but your future (retired) self will thank you if you can!

Learn more

We go into the savings suspension details in greater detail in our classroom, which you can sign up for here.

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Amanda Morrall is a co-founder of Simplicity and our in-house personal finance expert. She has 20 years of experience as a journalist and has been reporting on KiwiSaver since 2007. 

The information provided and opinions expressed in this post are intended for general guidance only and are not personalised to you. These materials do not consider your particular financial situation or goals and are not financial advice or a recommendation. This post is not intended to convey any guarantees as to the future performance of any of the investment products, asset classes, or capital markets mentioned. Past performance is no guarantee of future performance. Information is current at the time of posting, and subject to change without notice. Simplicity NZ Ltd is the issuer of the Simplicity KiwiSaver Scheme and Investment Funds. For Product Disclosure Statements please visit our website simplicity.kiwi.