Helen Twose 's Opinion

Personal finance and KiwiSaver columnist at the NZ Herald

KiwiSaver: Missed opt-out form causes confusion

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Employee looking to join savings scheme finds out they are already enrolled, triggering query over payments.

The default funds have a conservative investment focus and aim to be a temporary holding fund while people make a choice. Photo / Thinkstock
The default funds have a conservative investment focus and aim to be a temporary holding fund while people make a choice. Photo / Thinkstock

I opted out of KiwiSaver a few weeks after starting work in October last year.
What happened is that the payroll services company which the company used for paying its employees failed to submit my opt-out form.

So in IRD's records, I have been enrolled in the company's KiwiSaver scheme from November 5, 2013.

So for the past three months, no amount from my wages was deducted and no contributions were made from the employer, but I am enrolled in KiwiSaver.
Now I am thinking of joining KiwiSaver, and so have submitted a KS2 form so both the company and I start contributing towards the end of February.

Now my questions are:
1. Is the company liable to pay around $200 of employer contributions to my KiwiSaver account, as it has failed to submit my opt-out form?

2. Do I need to match my contributions?

One of the KiwiSaver rules is if you start a new job - fulltime or part-time - and aren't already in KiwiSaver your employer will automatically enrol you in KiwiSaver.

When you start your new job one of the things your new boss will give you is a KiwiSaver employee information pack, which has a KiwiSaver deduction form for you to fill out and hand back to your new employer.

There are a few exceptions to this rule, but it will generally apply to anyone between 18 and 64.

Once the deduction form reaches Inland Revenue you will either be enrolled in your employer's chosen scheme, if it has one, or a default fund.

There are five default funds, although that number will increase to nine in July with Westpac, BNZ, Kiwibank and Grosvenor Financial Services joining AMP, ANZ, ASB, Mercer and Fisher Funds.

The default funds have a conservative investment focus and aim to be a temporary holding fund while people make a choice about which provider and fund type to invest their money in.

That said, roughly 30 per cent of the $18 billion invested in KiwiSaver is still with one of the default funds.

It is possible to reverse your automatic enrolment after you've been in your new job for two weeks and before the end of eight weeks by completing an opt-out form (KS10 - available online from kiwisaver.govt.nz).

If you have chosen to join KiwiSaver yourself rather than be automatically enrolled by your employer you can't opt out but you can take a contributions holiday if you want to stop adding money to KiwiSaver.

I asked KiwiSaver legal expert Emma Dale, senior associate at Chapman Tripp, for some advice about what happens if the opt-out form didn't reach the IRD.

"If your reader's employer's payroll agent had submitted the opt-out form to Inland Revenue as it was required to, your reader would not have been entitled to have employer contributions paid to his or her KiwiSaver account.

"Nor would your reader have been required to have deductions from his or her pay in respect of employee contributions.

"Any contributions already made before the opt-out notice was received by Inland Revenue would be refunded to your reader (if employee contributions), the Government (if relevant) or the employer (in the case of employer contributions).

"It seems that the employer has operated on the basis that its agent has forwarded the opt-out notice to Inland Revenue, and not made any employer contributions, nor any deductions for employee contributions.

"This is consistent with your reader's wishes (expressed in the opt-out form).

"Therefore, the employer is not liable to pay employer contributions to the reader's KiwiSaver account nor does the employee need to make any contributions.

"The employer may be liable for a penalty for failing to provide information (the opt-out form) to Inland Revenue, which it may be able to recover from its payroll agent, if the payroll agent was the party who failed to provide the information to Inland Revenue.

"This will depend on the terms of the employer's contract with the payroll provider.

"Your reader can of course decide to join KiwiSaver by submitting a KS2 form to the employer and then both employee and employer contributions will commence from the next payday after the form is submitted.

"Once a KS2 form is submitted, the reader is not able to opt out of KiwiSaver."

Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the Herald's panel of industry players, email Helen Twose, helentwose@gmail com.

- NZ Herald

Helen Twose

Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose is a freelance business journalist who writes regularly about KiwiSaver and entrepreneurial companies. She has written for the Business Herald since 2006, covering the telecommunications sector, but has more recently focused on personal finance and profiling successful businesses.

Read more by Helen Twose

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