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KiwiSaver process time-waster?

 
Q.        As the person responsible for payroll at work I am frustrated by the process involved in opting out. When a new employee fills in the ‘opt out’ form I still have to fill out a KiwiSaver enrolment form and make contributions to KiwiSaver on their behalf for at least two weeks until the opt out form is officially accepted. The contributions are then refunded. ESCT is only refunded if we specifically request it. This seems to be a magnificent waste of my time and IRD staff time. Often only a few dollars are involved. What is the point of this process and are there any plans to review it?
 
A.         It is interesting to hear from someone who is involved in administering KiwiSaver for employees. On the whole, KiwiSaver has merged quite seamlessly into the payroll process alongside other deductions including PAYE, child support deductions and student loan repayments. 
 
When the KiwiSaver scheme was set up by the Labour Government in 2007 it was decided that it would not be compulsory, but that employees in particular would be strongly encouraged to join. Studies of human behaviour have proved that people prefer the inertia or ‘do nothing’ option so a new and eligible employee is automatically enrolled into KiwiSaver. The employee has to wait 2 weeks before they can opt out. They may not get round to it and they will soon warm to the idea of KiwiSaver when they see their balance growing. Of course if they are struggling financially they can apply for a ‘contributions holiday’ after 12 months. 
 
I have yet to find anyone who is not happy with their growing KiwiSaver balance. Particularly those who work long hours in a job that they do not particularly enjoy, it is rewarding to see something for their efforts. Many people who joined in 2007 now have $20,000 to $30,000 in their accounts. Now that employer contributions have been raised to 3%, for many people joining KiwiSaver is an easy way to get a 3% wage increase.
 
It does seem a rather pointless exercise to chase after those dollars that you have paid into IRD for the employee who is determined to opt out. 
 
I contacted IRD to see if they had any thoughts on the matter, but was told that they just implement the legislation while Treasury has the job of setting up and reviewing KiwiSaver processes.
 
I duly submitted your comments and received the following reply from a spokesperson for Treasury: “It’s certainly true that this feature creates administrative issues for IRD and for employers, but there is a reason for it.  The overall objective is to encourage people to join, particularly people who would otherwise not save at all, and this particular feature ensures that employees at least give KiwiSaver a try and see what it’s like contributing from their salary, before they decide whether or not to continue with it.    The judgement is that the short-term inconvenience for people who don’t need any help managing their finances is justified by the long-term benefit to those other people who aren’t as financially forward-looking and who might later regret not saving if they’re not nudged towards it.”
 
Employees who are opted in have between 2 and 8 weeks to apply to opt out. If the goal is to see what it’s like being part of KiwiSaver, surely they would need more than 2 weeks to make an informed decision? Perhaps next time Treasury looks at some of the administration rules around KiwiSaver they will consider increasing the minimum wait from 2 to 4 weeks.
 
 
 
Shelley Hanna is an Authorised Financial Adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.