Tough times force KiwiSavers to take a holiday

KiwiSaver membership growth has slowed and more people are taking contribution holidays, according to default provider Tower’ monthly analysis of the IRD’s KiwiSaver figures.

And the number of people freezing KiwiSaver payments is likely to increase in a shrinking economy, Tower Investments chief executive Sam Stubbs says.

Over the month of February, net KiwiSaver membership broke through the 1.65 million mark and according to Tower’s analysis, average monthly growth in net KiwiSaver membership for the six months to February 28 was 1.42%.

However, in the final three months of that period monthly growth dipped to average 1.25%.

“At 1.24%, February’s monthly growth fitted in neatly with the trend for the past three months and suggests that stronger growth in KiwiSaver membership may be unlikely while recession grips our economy,” Mr Stubbs said.

“Another factor of interest, given a poorer domestic economic outlook since the Christchurch quake struck, is the number of KiwiSaver members taking active contribution holidays (including active financial hardship holidays).”

More than 56,000 KiwiSaver members are recorded as taking active contribution holidays as of February 28, an increase of 46% over the space of a year and 3.4% of total KiwiSaver membership.

“Quite conceivably the number of KiwiSaver members on active contribution holidays could increase sharply as the economy shrinks further after the Christchurch shock, with household budgets squeezed by higher rents, increased prices for food and energy, and the add-on effect of GST at 15%,” Mr Stubbs said.

“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.”

He said 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.”