KiwiSaver Q&A: Between me and my employer I've been contributing 8% into KiwiSaver for 3.5 years but I'm considering going back to school. Can I withdraw my money?

Q: I am full-time employed and have been contributing to Kiwisaver for the last 3 and half years at 4% and my employer has been contributing 4% too.

I have recently been considering going back to Uni and doing a full time Masters Degree, will Kiwisaver pay me out so I can do this, as I will be effectively unemployed with no income?

A: Thanks for your email. The quick answer is no but hang on as you've touched upon a juicy issue here.

For starters let me say, wow! That's great you've been contributing more than the minimum amount (4%) and also that your employer is matching you dollar for dollar too. I don't know what your salary is but if you've been invested for three years now, and you haven't been with a dog of a provider and or a money losing fund, you must surely have a decent nest egg built up.

Your savings habit (at 4%) is to be applauded, same goes for your employer. As you are probably aware they are only obliged to contribute 2% and if National gets re-elected that will be raised to 3% in April 2013.

Your higher contribution rates put you leagues ahead of the game. If you don't believe me, have a play with our retirement calculator here and change the values around to see the difference.

Back to school

Going back to school is a good investment in my opinion despite all this talk about college bubbles. However it is not, at present, one of the grounds upon which you can cash in your KiwiSaver chips. Ngai Tahu has a savings scheme similar to KiwiSaver (called Whai Rahu) which does allow a draw down for education purposes which is something that will hopefully be introduced one day to KiwiSaver.

Just to recap, there are four permitted reasons to take your money out of KiwiSaver before 65: significant financial hardship, serious illness, first time home withdrawals, or a permanent move abroad. (See early access on the KiwiSaver website for more).

Obviously, it would be unreasonable to expect you to contribute making your current levels of contributions were you to return to full-time studies. (See change of work explainer here). If and when you leave your job, your employer's contributions will simply stop. You'll have to notify your provider that you are no longer in paid employment. (See also KiwiSaver contributions holiday here for more.)

Contributions holidays can generally only be taken once you've been in KiwiSaver for 12 months. As you've been working for three years already you'll be sweet in terms of eligibility. Like all holidays, KiwiSaver contributions holidays aren't forever. The minimum is three months and the maximum five years. Unless you decide to go on and do a doctorate, I expect you'll be fine.

If you wanted to continue making lump-sum payments while you're going to school, there's nothing stopping you from doing so. The benefit of doing this is that if you contribute at least $1,042.85, you'll also get another $521 in member tax credits from Government, under the current rules.

I'm not sure if your decision to return to school is contingent upon having access to those KiwiSaver funds. I'm guessing you'd like to go back to school without having to borrow money to fund it. I don't blame you, I'm debt averse myself although I know there are times when "good debt" is worth the price, in terms of the long-term return. If you're getting a degree that will boost your earning ability, further your career and lead to better opportunities it could be worth it.

The following may or may not have any influence of your decision, however more information is always better I reckon.

I was curious to know how much a two-year gap in contributions at your current rate (assuming you are looking at a two-year Master's) would cost you in the grand scheme of things. None of the KiwiSaver calculators I could find compute this so I had my excel-friendly colleague do the numbers for me based on a few assumptions.

If I'm way off here you can do the same on a spreadsheet.

I took a guess and put you in your late 20s. For the purposes of this exercise, we said 28. We also took an average Kiwi salary of $50K. On the face of it, bowing out of KiwiSaver for a period of two years, given your present contributions and that of your employer, you'd be $8,314 poorer for it at the end of the 2 years assuming a 4% after tax, after fees return on the missed contributions. That doesn't include the $521 a year member tax credit from Government. That $8K may not seem like much in the grand scheme of things however when you factor in the compounding return you will be missing out on between the ages of 30 and 65, you're looking at a loss of close to $33K. I know, took me by surprise too. We assumed an after tax, after fee return of 4% until retirement age.

Put in this light, a contribution holiday doesn't look so attractive does it? And the same time, being trapped in a job that you dislike just for the sake of a comfortable retirement isn't so hot either.

Before you pull the plug on both KiwiSaver and the job put on your thinking cap and explore your range of options fully. If your employer is paying you 4%, maybe they value you to the point where they wouldn't want to lose you.Would it be possible to return to school part-time and have them help with the costs as well? Obviously, it would have to be a two-sided arrangement that was mutually beneficial, so you might have to commit to them for a few years afterwards.

I know our employment situation in NZ isn't as dire as other parts of the world, but there is something to be said for job security and a decent employer as well.

If asking them to put you through school  is a bit much perhaps you could look at a Master's programme that could be stretched out over a longer period of time, so you could study and keep your job, as well as keep those savings in tact?

And a final thought, if it's boredom on the job or perhaps lack of opportunity, have you tried discussing your future with your employer? I've had some horrible managers over the years but also some really good ones and my experience is that those bright enough to know talent will do what they can to retain it.

Good luck with your decision.

Here's some links you might find useful as well as an excerpt from the KiwiSaver website explaining how to apply for a contributions holiday? Also, you may want to check out our KiwiSaver Q&A section for other questions that have been raised by our readers.

Our retirement calculator

Sorted.org.nz KiwiSaver calculator

KiwiSaver website

Which degrees pay the most

How to apply for a contributions holiday

To apply for a contributions holiday or an early contributions holiday you can:

• apply online if you're registered for My KiwiSaver, or
• print off and complete a Contributions holiday request (KS6) and post it to Inland Revenue (address details are on the form), or
• call Inland Revenue on:
  • 0800 549 472 (0800 KIWISAVER), or
  • 04 978 0800 if calling from a cellphone.

Find out more about the contributions holiday process.

What happens to your contributions?

While you're taking a contributions holiday:

• your employer is not required to make compulsory employer contributions
• you can still make voluntary contributions.