Kiwis are costing themselves billions of dollars in retirement savings by spending too long on KiwiSaver "holidays", new research suggests.
Once members have been in the scheme for 12 months they can take a break from putting money from their pay into KiwiSaver for up to five years.
And there are calls for changes to the regime to prevent KiwiSaver investors jeopardising their financial futures with extended breaks.
ANZ, the biggest KiwiSaver provider with more than 600,000 members, recently conducted research on its members who took contribution holidays.
It found members stayed on holiday for an average of four years and three months, with the majority of people taking a breather aged between 18 and 35 years old.
Modelling by ANZ showed that for someone entering the scheme aged 20 on a modest salary (see below), a five-year holiday starting at age 30 could wipe up to $50,000 (12 per cent) from their expected retirement nest egg of $450,000.
Based on this figure, ANZ has estimated a future savings gap of $5.7 billion across the more than 112,000 KiwiSaver members (4.8 per cent) on contribution holidays.
ANZ Wealth managing director John Body said the figures were concerning because the earlier and longer someone takes a holiday, the bigger the effect it has on future returns.
"We should make that contribution holiday one year and make them re-apply to stay on, so that people have to make an active decision to contribute again or not," he said.
Body said many who take holidays from KiwiSaver take longer than intended because they simply forget to restart.
One of them is Maire Vieth, a 49-year-old mother of three from Devonport who stopped contributing to KiwiSaver in 2012 after a job change that saw her income drop.
While she intended to go on holiday from the scheme for only a few months, she ended up taking 18 months out before viewing a printout of her husband's sizeable KiwiSaver balance reminded her to get back in.
"It's one of those things that can go to the bottom of the list and never get done. In retrospect I'm not sure I should have gone on the holiday."
Financial Services Council chief executive Peter Neilson said many investors didn't realise how big an impact contribution holidays could have on their retirement savings.
"We have done research that looked at how much you have to top up your savings if you delay contributions. If you delay them by 10 years it can double the contribution rate required to get to the same point."
Neilson said KiwiSaver works mainly on "inertia" and this applies to those taking contribution holidays.
"They can go for five years and they typically do go for five years."
But not everyone supports tightening the rules for contribution holidays. Financial adviser Norman Stacey of Diversified said people should have the freedom to decide how to use their money, including whether to contribute to KiwiSaver.
"If contributing to their retirement is not the best use of their money there should be a mechanism such as contribution holidays, otherwise it would be a tax," he said.
"If you have got excessive debt or a loss of income or you go back to school in mid-life you might be better to take a contribution holiday."
A woman starts in KiwiSaver at 20 years old when she is earning $27,500, contributing 3 per cent of her salary. At age 65 her KiwiSaver account is projected to have $452,600*.
However, if she takes a five-year contribution holiday from age 30-35, her KiwiSaver account at 65 is projected to have $402,000, $50,000 less.
*Not inflation adjusted. Assumes 2.5 per cent annual salary increase. Invests in ANZ KiwiSaver Scheme's Lifetimes option which switches between funds based on age.
- Sunday Star Times