Social service providers will no longer need to hand over the private details of their clients to the government until a new data protection policy is in place.
Last month the Privacy Commissioner found handing over the details was "excessive", disproportionate to the government's need, and the Ministry of Social Development acted "prematurely" without considering privacy risks.
Minister for Children Anne Tolley has temporarily suspended the process.
She said an advisory group would be set up to consider the best way to increase the level of data being collected, while maintaining privacy and trust with providers.
"An advisory group will provide oversight and lead the work to identify, evaluate and recommend a robust approach. It will bring together a number of agencies, as well as the Government Chief Information Officer, the Office of the Privacy Commissioner, and independent data consultants."
She said once a new approach has been agreed and a suitable IT system was available, providers would be given a new contract.
Mrs Tolley maintains data collection was still needed so it could be analysed and used by the wider social sector.