KiwiSaver Withdrawal or KiwiSaver Opt Out is the second best thing you can do, right after the first best thing which is never joining this schema in the first place.
In our several previous articles we argued why KiwiSaver is a bad retirement investment choice for you.
Our recommendation is to avoid it and if you are already in then opting out of there. In this article we will cover what options you have in case you want to opt out of KiwiSaver.
KiwiSaver Opt Out process
The law in New Zealand says that every new employee is automatically enrolled in KiwiSaver when they start a new job. Then after 14 days, but no later than 8 weeks you can decide if you want to stay in or whether you prefer to opt out of KiwiSaver.
If you miss the 8 weeks deadline then it is still possible to withdraw, but it’s more difficult. It would require writing letters to IRD and explaining why you missed the deadline.
IRD generally accept following reasons for late opt outs:
- Employer didn’t give you KiwiSaver information pack
- Employer didn’t provide investment statement for default KiwiSaver fund or fund they chose to enrol you into
- You were enrolled while you should not have been
- Any other events outside your control
Based on quality of your arguments the IRD then may grant you permission to leave the schema or decline it. If they refuse then you may get stacked with it for life.
Requirement to wait for 14 days before you are allowed to opt out of KiwiSaver is the most illogical requirement we have ever seen.
It is supposed to give people some cooling off period before they may “prematurely” withdraw. Such approach is highly disrespectful and treats people like they were incapable of making their own decisions.
At the end even if anyone opts out of KiwiSaver and later change his or her mind, it’s still possible to re-join at any later time.
The whole treatment of the initial 14 days period for opting out is based on principles of a nanny state where government thinks that they know better than its people.
The other bad thing is that even if you are already decided to leave the KiwiSaver, you still must pay your KiwiSaver contributions. And not just for the 14 days you are in, but for couple of more weeks until the IRD officially processes your Opt-out Application and notifies your employer to stop deducting your contributions.
After some more time, which may take up to 30 days, the IRD will then refund your contributions back to your bank account or send you a cheque.
KiwiSaver Contribution Holidays
If you didn’t withdraw from KiwiSaver during the initial 8 weeks and the IRD won’t accept your reasons for late opt out then the only other option you have to avoid paying the KiwiSaver contributions is to apply for early repayments holiday.
To get early contributions holiday approved by the IRD you will have to provide a proof of hardship, which again they may or may not approve. Default length of early contributions holiday is only 3 months and exceptionally can be granted for longer.
You will become eligible for regular contribution holiday after 12 months of contributing to Kiwisaver. This time there are no strings or conditions attached.
The regular contributions holiday can be anything between 3 months and 5 years. But the good thing is that there is no maximum number of regular KiwiSaver contribution holidays, so you can keep re-applying every 5 years for a new holiday indefinitely. This way you can avoid contributing to Kiwisaver forever.
Just one more thing to be aware of – while you are not contributing to your KiwiSaver, your account with the KiwiSaver provider is still open and active.
Your balance after only 12 months contributions will be presumably quite low and the fees over the years may actually eat not only all your “profits”, but your initial contributions as well. It’s then quite possible to run into negative balance.
How will the KiwiSaver fund deal with such scenario is beyond our knowledge.
You may check with them or with the IRD. Hopefully you won’t be presented a bill to make up the difference, topping it up to zero balance.