Mary Holm 's Opinion

Mary Holm is a personal finance columnist for the NZ Herald.

Mary Holm: Don't assume KiwiSaver will just happen

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Onus falls on employee to inform new boss about existing enrolment in scheme when changing jobs

There's no good news on backdating compulsory employer contributions or tax credits.  Photo / Getty Images
There's no good news on backdating compulsory employer contributions or tax credits. Photo / Getty Images

Q: My son joined KiwiSaver when it first started. He has never opted out. However, he has just (belatedly) realised that his current employer has not been taking KiwiSaver out of his wages, or making their employer contributions. He has been with the employer for 18 months. It is a nationwide company.

Talking to the IRD, what it told him was that while a first-time employee will be automatically enrolled in KiwiSaver unless he or she opts out, when you transfer to a new job the employer is not obliged to make KiwiSaver deductions unless you specifically advise that you are joined up to KiwiSaver. In other words, you have to take a positive step as you start your second or third or fourth job.

So if you assume that your KiwiSaver will just happen - it won't, not unless you have filled in the appropriate form.

This was news to us and my son, who had assumed his KiwiSaver deductions were happening automatically and did not realise for quite some time that this was not the case.

It might be an interesting loophole to confirm with the IRD and then make readers aware of.

His employer immediately started the KiwiSaver deductions when my son advised that he was enrolled in the scheme - but of course this was after 18 months of no contributions from him or his employer.

Is the employer obliged to backdate payments (assuming my son also backdates his employee contribution)? Is there any redress with having missed out on the Government tax credit or is that just lost? And of course, my son now has 18 months less time to count towards the house deposit scheme. What is the process or safeguards that exist for this situation?

A: Let's look first at what should have happened when your son started his current job.

Says an Inland Revenue spokesperson: "Employers should be determining if all new employees are subject to the automatic enrolment rules and following these. If a new employee is an existing member and advises the new employer of this, then the employer should start deductions immediately upon them commencing their new job."

However, what your son was told is correct - the onus was on him to tell the employer.

"As an existing KiwiSaver member, it is his or her responsibility to advise any new employer of their KiwiSaver membership and they should start deductions. This would normally be done through the employee completing and providing their new employer with a completed KiwiSaver deduction notice [KS2]."

But, I asked, isn't it up to the employer to give the employee a KS2 form?

Apparently not. Inland Revenue says the KiwiSaver Act 2006 includes employee obligations. "The employee must give notice to the employer of their name, IRD number and whether they are a KiwiSaver member or not. If they are a KiwiSaver member, the employee must either give a deduction notice or a copy of a notice given by the commissioner that grants a contributions holiday," says the spokesperson.

So that seems to be that.

On to your question about whether the employer has to backdate their contributions. Says the spokesperson: "An employee has an obligation to monitor their employer's actions regarding their regular wage or salary. They need to be aware of what deductions are being made and what (in the case of KiwiSaver) employer contributions are made."

That's probably fair enough. People should check their pay statements.

"An employer has a grace period for backdating compulsory employer contributions for new eligible employees who the employer has failed to automatically enrol." But because your son was already a member, that doesn't apply. The employer's obligation starts from the date your son handed over his KiwiSaver deduction information.

What about missed tax credits? No good news there either. "The member will be eligible for the next member tax credit once they have recommenced making contributions."

Things are somewhat brighter on the first-home withdrawal front, though. To be allowed to withdraw his contributions, employer contributions and returns earned in his account, your son just has to be a member for at least three years. There's no contributions requirement.

However, if he wants the $3000 to $5000 first-home subsidy, he has to contribute for three to five years.

In response to your final question about safeguards, there aren't any really.

I reckon an employer - especially a nationwide one - should give a bit of guidance to a new employee who is already in KiwiSaver. But it seems they're not obliged to.

It's a lesson for your son - and as you say to other readers - to take a bit more interest in what happens to their pay.

Property relationships

Q: Your recent answer (re relationship home division) was very informative.

The general idea of the Property Relationships Act (PRA) is a good one - that assets acquired during the relationship are split 50/50 at the end. Unfortunately, this is not applied to the relationship home, which is split 50/50 regardless of who owned how much of the home prior to the relationship.

This flaw is often financially devastating to those who invite their partner into their home when the mortgage is now a very small portion of the home's value and the owner's life savings are that home. This is frequently the case for those getting together in their 40s or later.

I've discussed the PRA with several lawyers. They all say this is a serious flaw and very few people are contracting out. (But we shouldn't need lawyers to protect us against poorly drafted law.)

The solution is to simply recognise the percentage ownership of the dwelling when the couple start living together in it (just as the PRA does for almost all other assets).

For example, a woman owns a house valued at $500,000 and has a $100,000 mortgage when her new partner moves in. She owns 80 per cent of the house, and that should be separate property.

Five years later they split up. The house is valued at $700,000 with a $50,000 mortgage. Eighty per cent ($560,000) is separate property and is hers. The remaining 20 per cent minus mortgage ($140,000 minus $50,000, which comes to $90,000) is relationship property and split 50/50. She keeps the house with its mortgage, and he gets $45,000 from her.

This formula works well for all cases - house just bought with huge mortgage ... right through to a mortgage-free home.

My situation is I live in my mortgage-free property now worth about $800,000. I dare not invite a new partner to share my home. Even with a contracting-out agreement (to treat my house as separate property), it'll cost $1000-plus, a judge may set it aside as "unfair", and a disgruntled partner might claim being under duress to sign it.

It is far safer for me to rent out my house and rent elsewhere with my new partner.

A: My first reaction to your letter was, "that solution sounds reasonable". But Deborah Hollings Chambers QC - who works in this area - disagrees. And she has largely persuaded me.

If you swap genders in your example, and then say the man owns the house mortgage-free, and the couple live together for 20 years before they split, it puts things in a different light.

In such a situation, the man will get all the gain in the property value over the 20 years and the woman, who has contributed to the relationship for all that time, is left with nothing.

"All of this was thrashed out in 1976 before the law was changed," says Hollings Chambers. "The courts and Parliament carefully examined the merits of dividing the home equally after three years. The act is considered social policy legislation. It's partly to make sure that women, in particular, are well looked after.

"A further rationale is the close association of the home with the relationship. In your reader's example, how would the man's (almost inevitable) contributions be taken into account? For example, if he builds a new deck, helps pay the rates or redesigns the garden.

"The special status of the home does provide for clear, certain and, usually, fair results."

I'm not quite so positive. But this seems to be one of those situations where whatever we do has its difficulties, and the status quo might be better than the alternatives.

Hollings Chambers adds that it's not difficult to contract out of the PRA - as illustrated in the next Q&A. Or you could move into a rental property as you suggest. "That would work. The property he owns would remain separate property as long as he puts nothing from the partnership into it. It would not become the family home. The family home would be defined as the rental property, being the one they were living in immediately prior to separation."

A final cheeky comment from me about your personal situation: Life isn't all about risk minimisation!

Protecting legacy

Q: Regarding your correspondent concerned to protect her legacy to her daughter, I have a similar situation whereby my new partner has moved into my home, which is mortgaged.

We have an agreement that everything each of us brought into the relationship remains our own. And if one or other has an inheritance, that too remains our own. In relation to the mortgaged property, with every contribution to reducing the principal of the mortgage my partner "buys" a little piece of the property, and if we were to separate then he would be entitled to that plus a proportion of any increase in equity since he moved in.

This works well - it protects me from losing half of all my assets if he were to leave within the next few years, but also means that he is not disadvantaged in the way he would be if the house remained all mine.

Incidentally, a major reason that I drew up this agreement was that should he die, his estate (that is, ex-wife and children) could demand half of all my assets (my home) but I would have no call on his assets as they remain outside the definition of relationship property.

A: Well done. Of course, it's simpler if a couple negotiates their own agreement - as you have done - than if a parent tries to oblige them to do it, as discussed in some of the recent Q&As.

Hollings Chambers notes that: "In regard to the last paragraph, I think the writer's concern is a justified concern." Without your agreement, if your partner died before you, his estate could make a claim under the Property (Relationships) Act 1976 for the equity in the house. "The agreement (assuming it is upheld by the court) will prevent this happening."

* Mary Holm is a freelance journalist, part-time university lecturer, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.

Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

- NZ Herald

Mary Holm

Mary Holm is a personal finance columnist for the NZ Herald.

Mary Holm is a columnist, best-selling author and seminar presenter on personal finance. She is also a director of the Financial Markets Authority and the Banking Ombudsman Scheme, and holds an MBA in finance. Previously she was business editor of the Auckland Sun and Auckland Star, and has worked for the NZ Listener, Australian Financial Review and Chicago Tribune. She has been called “The nation’s favourite investment agony aunt.”

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