Increasing numbers of KiwiSaver members are halting payments into the scheme, raising fears that households are digging into future earnings to make ends meet.
Photo: 123RF
A Financial Markets' Authority report shows those taking a contribution holiday jumped 14 percent, from 93,322 to 105,785 at the end of March.
Council of Trade Unions president Richard Wagstaff said it was clear households were under the pump, and that low wages meant people were using KiwiSaver to pay their bills.
NZ Council of Trade Union president Richard Wagstaff Photo: Supplied
"There is other evidence in New Zealand such as increasing debt levels, the contributions we're hearing from the budgeting agencies, that demonstrate that there are too many working poor in New Zealand.
"And that is a function of a labour market that is simply holding wages down and labour market policies settings which are not delivering a fair deal for working New Zealanders," Mr Wagstaff said.
Some 36,597 KiwiSaver members started a contribution holiday in March this year.
While 15,255 ended their holiday and restarted contributions, another 8879 ended the holiday and didn't resume repayments.
Rising debt, divorce, parental leave and business failure are some of the reasons why people take a KiwiSaver breather.
However, Massey Business School director of academic programmes at Claire Matthews said people should not use it as an easy way out to help ease their financial plight.
"It possibly reflects the economic situation. But I think it also reflects a short sighted view, potentially, of some of those people about the short term pain that they might encounter for the long term gain.
"And that it is going to make their retirement less sustainable [than] it would otherwise be. So I think it is definitely a concern about people taking this holiday," Dr Matthews said.
'They fall out of the habit of saving' - David Boyle
A KiwiSaver expert said the five-year contribution break needed to be shortened.
David Boyle Photo: Supplied
Commission for Financial Capability head of investor education David Boyle suggested that at a minimum, a one-year reminder should help nudge people back into a savings habit.
"If people forget about it, it's out of sight out of mind. Then there's two things that can happen - one is they fall out of the habit of saving. The second is they may not be taking advantage, while they are on holiday, of accessing or getting the member tax credit, which as a minimum [is] something they should he considering," Mr Boyle said.
Mr Boyle said he also favours changing the term from 'contribution holiday' to 'contribution suspension', pointing out that taking a savings break is not necessarily a good thing.
Emphasis on providers to take initiative - Financial Markets Authority
But it is not just contribution holidays which are under scrutiny.
The number of people not contributing to KiwiSaver regularly, which also includes self-employed members who make yearly lump-sum payments, rose 5 percent to a little over 1.1 million, or about 43 percent of the total number in KiwiSaver.
The chief executive of the Financial Markets Authority, Rob Everett, said the emphasis was on the providers, like the major banks and AMP, to take the initiative.
"There has been a real struggle to get people, once they're in KiwiSaver, to continue to contribute, to actually make decisions about switching, Mr Everett said.
"And I do feel that inertia has probably suited some of the providers because they haven't had to do a huge amount of work and they've still got the funds under management.
"So, I think this is a sign of the maturing of the market that that competitive edge is going to be really forced upon the providers."
Mr Everett said the default providers would now be required to engage and educate their clients about assessing and making decisions about their retirement savings.