Hundreds of thousands (it could easily be well over a million) of New Zealanders that joined KiwiSaver did so, and still do so, via auto-enrolment. This occurs when a person starts a new job, and/or they opt in to KiwiSaver via their employer. It is the Government's preferred method of enrolment into KiwiSaver, and if KiwiSaver is made compulsory, it may well be the method used to sign everyone up.
When someone joins via auto-enrolment they complete a KS2 form and they end up in either a default fund or their employer's nominated scheme and fund. An employee has three months to decide to opt out, and during this time the contributions are kept by the IRD and not sent on to the KiwiSaver provider until the end of the three month opt in period.
There is a major drawback with this enrolment method in that nowhere on the KS2 form that the employee completes can they enter their KiwiSaver tax rate (Prescribed Investor Rate or PIR). Rather they get taxed at the highest rate of 28% until they advise their KiwiSaver provider otherwise. This can only happen after the end of the three month opt in period. To make matters worse, there is no way for overpaid tax to be refunded as KiwiSaver tax is a final tax.
KiwiSaver tax is based on a person's previous two years' earnings, so for example, someone just out of school starting their first job, this means that their PIR should be 10.5% rather than 28%. Another example is anyone who has earnt less than $48,000 pa in either of the previous two years should be on 17.5%, not 28%. What compounds this problem is that most members are unaware of their over-taxation and their need to act. The implications have been and are severe. Huge numbers of members have been penalised over years. This problem is aggravated by the fact that KiwiSaver providers are unable to contact many of their members to confirm their PIR as the contact information they have is often out of date. The IRD has recently started penalising members who have specified too low a PIR rate, but they have not refunded members who have been over-taxed. This over-taxation problem has existed since KiwiSaver commenced in 2007, and it has penalised some of the youngest and least financially aware members in many cases for years. The IRD has been asked to resolve the issue, but for some reason, no change has come about. This needs to be urgently resolved and there is a very easy solution.
I believe that this is one of the very worst aspects of KiwiSaver and it requires public pressure to get the Government to change it. So I have launched a petition to Parliament. The more people who that are prepared to sign the petition, the greater the awareness and greater the likelihood of change.
I have approached all KiwiSaver providers and the financial adviser industry, and already had some very positive, supportive responses. Almost all agree it is a serious problem that needs to be fixed. More than anything else, however I need your individual support. Please sign the online petition here and share it with your friends and on social media.
Thank you in anticipation of your support.