KiwiSaver During an Income Protection Claim in NZ (2026)

On an income protection claim your salary keeps coming, but your KiwiSaver stops: no member, employer or $260.72 government contribution. Here is how to keep it growing.

Income protection does what the name says. When illness or injury stops you working, the policy pays a benefit, usually up to 75% of your gross pre-disability income, so the mortgage gets paid and the lights stay on ⁹. The side effect that often goes unnoticed: while you are on claim, your KiwiSaver stops growing from contributions. The benefit replaces your income, but it is not salary, so none of the three contributions that normally feed your KiwiSaver are running.

This guide explains what stops, what the lost government contribution is worth in 2026, the compounding cost of a year or two without contributions, and how to keep your KiwiSaver moving while you recover.

TL;DR: An income protection benefit is not salary or wages, so no PAYE-based KiwiSaver deductions happen. While you are on claim, your member contribution, your employer's match and the full $260.72 annual government contribution all stop. The fix is voluntary contributions: pay $1,042.86 across the KiwiSaver year and you still collect the full $260.72. ¹²⁷

Why isn't my income protection payment treated as salary for KiwiSaver?

KiwiSaver contributions are bolted onto the PAYE system. Your member contribution and your employer's matching contribution come out of, and are calculated on, your gross salary or wages every payday. No salary or wages, no PAYE-based KiwiSaver deductions.

An income protection benefit is not salary or wages. Where your employer was liable for the premium, the payout is income to you under section CE 11, but Inland Revenue's long-standing guidance confirms the premiums are not subject to PAYE under section CE 5(3)(j), so the payout does not run through the wage machinery that drives KiwiSaver ⁷. Where you held the policy personally, the benefit is typically not taxable income at all. Either way, the result is the same for your retirement account: your KiwiSaver sees nothing.

This is not a quirk of one insurer. It is how the system is wired. The benefit lands in your bank account and keeps your household running, which is its job. It was never designed to feed your KiwiSaver, and many people only discover that months into a claim.

What KiwiSaver contributions stop during an income protection claim?

When salary stops, three separate contributions stop with it.

• Your member contribution. From 1 April 2026 the default minimum employee rate is 3.5% of gross pay, rising to 4% from 1 April 2028 ⁴⁵. On a $90,000 salary at 3.5%, that is about $3,150 a year of your own money going in. On claim, it stops.
• Your employer's matching contribution. Employers match at the same minimum rate, 3.5% from 1 April 2026 ⁴. That is another roughly $3,150 a year on a $90,000 salary, gone, because there is no payroll to match against.
• The government contribution. Also called the member tax credit, this is paid once a year based on what you personally put in. No member contributions, no government top-up. As of 1 July 2025 the maximum is $260.72 a year ¹.

A single illness can switch off your own savings, your employer's match, and the government's annual contribution at once, without any notice that it has happened.

How much is the halved government contribution now worth?

Budget 2025 changed the government contribution materially, and a lot of Kiwis still think it is the old number. From 1 July 2025 the government pays 25 cents for every $1 you contribute, up to a maximum of $260.72 per KiwiSaver year (1 July to 30 June) ¹. To collect the full amount you need to personally contribute $1,042.86 in that year ².

That maximum was halved. It used to be $521.43; it is now $260.72. Two other changes landed at the same time: anyone with taxable income over $180,000 no longer qualifies at all, and 16 and 17 year-olds now do qualify ³. Provider guidance from the likes of Booster confirms the same 25c-per-$1 mechanics and the same $260.72 cap from 1 July 2025 ¹³.

It sounds small next to your income, but the government contribution is a strong return for a KiwiSaver member: a guaranteed 25% on the first $1,042.86 you put in, before your fund earns a cent. The target works out at roughly $24 a week of automatic payments, or a single lump sum, to hit $1,042.86 by 30 June ¹⁴. Missing it because you are on claim means giving up a guaranteed return when your retirement saving can least afford it.

How much does a year off work cost your KiwiSaver?

The lost government contribution is the visible cost. The larger one is everything that money would have earned over the next two or three decades.

KiwiSaver returns have been solid. The FMA's 2025 annual report found default (balanced) funds averaged 6.5% a year, with investment returns adding $6.4 billion in the year to 31 March 2025 and positive returns in eight of the last ten years ¹¹¹². Longer-run Morningstar data to mid-2025 puts ten-year averages at around 6.4% for balanced and 7.8% for growth funds ¹⁵.

Here is what a single year of silence actually costs by the time you retire, assuming a 6.5% net return and a 30-year horizon.

Worked example: one year off work at 35, retiring at 65

Scenario: Mere earns $90,000 and is off work for 12 months on an income protection claim at age 35. Her member contribution (3.5%), her employer's match (3.5%) and the full government contribution all stop for that year.

One year off work with no contributions costs roughly $43,000 of retirement balance three decades later. Two years takes that past $85,000 in foregone retirement savings, none of which shows up on any statement as a loss, because it never arrived.

Many income protection claims run six to nine months, long enough to miss a full KiwiSaver year if no one sets up a voluntary top-up. A KiwiSaver review can confirm whether a top-up is needed before 30 June.

How to keep your KiwiSaver moving with voluntary contributions

You do not need a salary to feed your KiwiSaver. Voluntary contributions count, and they count toward the $1,042.86 needed for the full government contribution as long as they land by 30 June ⁸.

You can make voluntary contributions three ways ⁸:

1. Directly to your scheme provider (Simplicity, Milford, Generate, Booster, Kernel, Fisher Funds, ANZ and others all accept this), usually via an automatic payment or one-off bank transfer.

2. To Inland Revenue, who pass it to your provider.

3. Through salary deductions once you are back at work, which is less useful while on claim.

The simplest approach while on claim is an automatic payment to your provider. To secure the full government contribution you need $1,042.86 between 1 July and 30 June, which is about $24 a week ¹⁴, or a single lump sum if cash flow allows once the benefit is flowing. Even if you cannot manage the full amount, every dollar still earns 25 cents from the government up to the cap, so a partial contribution is never wasted.

Voluntary top-up ready-reckoner (2025-26 KiwiSaver year)

While you are topping up, it is worth a quick check that your Prescribed Investor Rate (PIR) is correct, because a lower income year on claim can move you into a lower band. The PIR thresholds are not the same as the income-tax brackets, a point Inland Revenue's own PIR tool warns about, and they have been frozen since 2010 ¹⁰. PIR uses two tests, and your rate is the lower of the two results: a taxable-income test and a combined-income test (taxable income plus your attributed PIE income). The bands are 10.5% (taxable income $14,000 or less, or combined income $48,000 or less), 17.5% (taxable income $48,000 or less, or combined income $70,000 or less), and 28% otherwise ¹⁰. An overstated PIR overtaxes your fund returns, and a year on a reduced income is exactly when this can drift. Check your rate with the KiwiSaver health check before you set the top-up.

Should you ever pause vs keep contributing?

For most people on a claim, keep the government contribution alive at a minimum. The $1,042.86 to capture $260.72 is the highest-certainty return you will find anywhere, and it does not depend on markets. If the benefit covers your essentials with anything to spare, prioritise that top-up before 30 June.

There are narrow exceptions. If the claim has cut your household to the bone and you are drawing on savings just to cover the mortgage, your emergency runway comes first, retirement saving can wait a few months. And if you are already retired or near 65, the calculus changes entirely.

There is also a related option worth knowing about. From 1 February 2026, when the default minimum rate rises, members can apply to Inland Revenue for a temporary savings rate reduction to stay at the lower rate for 3 to 12 months ⁶. That is aimed at the rate increase, not claims, but it is part of the same toolkit for managing contributions through a tight period. Pausing should be a deliberate, time-boxed decision, not the accidental default a claim creates. A KiwiSaver advice session can help you weigh that call.

Your checklist: protect income AND retirement at once

1. Confirm income protection actually covers you. A benefit of up to 75% of gross income is what keeps the household running while you recover ⁹. If you do not have it, that is the first gap to close: see our income protection cover.

2. Know that the benefit will not feed your KiwiSaver. It is not salary, so no member, employer or government contribution flows automatically ⁷.

3. Set up a voluntary contribution as soon as you are on claim. An automatic payment of about $24 a week to your provider keeps the government contribution alive ⁸¹⁴.

4. Hit $1,042.86 by 30 June to bank the full $260.72 government contribution, or as much of it as your budget allows ¹².

5. Check your PIR in case a reduced-income year has moved you into a lower band ¹⁰.

6. Diarise the return to work. Restart payroll contributions and stop the voluntary top-up if you no longer need it.

What stops contributing to your KiwiSaver during a claim

The chain is simple, and so is the fix at the end of it:

Salary stops → member 3.5% stops → employer 3.5% match stops → $260.72 government top-up stops → voluntary top-up is the fix.

Source: Inland Revenue (Budget 2025 settings).

Frequently asked questions

Do my KiwiSaver contributions automatically continue while I am on an income protection claim?

No. KiwiSaver member and employer contributions are calculated on salary or wages through PAYE. An income protection benefit is not salary or wages and is not subject to PAYE-based KiwiSaver deductions, so contributions stop unless you make them voluntarily. ⁷

Can I still get the government contribution if I am off work and on claim?

Yes, but only if you contribute the money yourself. The government pays 25 cents per $1 up to a maximum of $260.72 per KiwiSaver year, and you need to personally contribute $1,042.86 by 30 June to get the full amount. Voluntary contributions count toward that threshold. ¹²⁸

How much is the KiwiSaver government contribution in 2026?

From 1 July 2025 the maximum is $260.72 per year, down from the previous $521.43. Members earning over $180,000 in taxable income no longer qualify, and 16 to 17 year-olds now do. ¹³

Does my employer have to keep matching while I am on claim?

No. Employer contributions match your employee contributions on gross pay. With no salary being paid, there is no payroll for the employer to match, so the employer contribution stops alongside yours. ⁴

What is the easiest way to keep contributing while on claim?

Set up an automatic payment directly to your KiwiSaver provider, around $24 a week, to reach $1,042.86 by 30 June. You can also make a single lump sum or pay through Inland Revenue. Any amount still earns the 25% government top-up up to the cap. ⁸¹⁴

Should I reduce my contribution rate instead of pausing?

From 1 February 2026 you can apply to Inland Revenue for a temporary savings rate reduction of 3 to 12 months when the default minimum rises. That is a separate tool from a claim, but the principle holds: any pause should be a deliberate, time-boxed decision rather than the accidental default a claim creates. ⁶

Book a free KiwiSaver review with a Smiths adviser. Book a review

General information, not personalised financial advice. Seek advice tailored to your situation before acting. Craig Smith Business Services Ltd (FSP712931), trading as Smiths Financial, holds a Class 2 licence issued by the Financial Markets Authority and is a member of the Financial Dispute Resolution Service (FDRS). Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. Last reviewed 16 June 2026.