Parliament has knocked back a swag of citizen petitions calling for early access to KiwiSaver funds on non-standard grounds ranging from redundancy to gender-reassignment surgery.
The Finance and Expenditure Committee (FEC) also last week rejected pleas to permit easier withdrawals of Australian superannuation money transferred to KiwiSaver accounts.
Six of the seven KiwiSaver petitions reviewed by the FEC in May revolved around access issues while a further effort advocated for a technical change to the auto-enrolment process, which likewise failed to excite much enthusiasm in the parliamentary committee.
Financial adviser, Rachelle Bland, lobbied parliament to stop the current practice of assigning the top prescribed investor rate (PIR) of 28 per cent to auto-enrolled KiwiSaver members.
Bland argued many of the – mostly young – auto-enrolled KiwiSaver members would be over-taxed if the 28 per cent tax rate applies.
The FEC noted the historical PIR problems uncovered in an Inland Revenue Department (IRD) sting in 2019 that found “approximately 1.5 million people were paying the wrong tax on KiwiSaver”.
“The figure includes 950,000 KiwiSaver members who are owed a total of $42 million,” the FEC report says. “Inland Revenue has stated that none of this will be refunded.”
While the IRD and government have since remedied most of the PIR systemic flaws, Bland said members should have the right to supply their own PIR to employers at the time of auto-enrolment rather than defaulting at 28 per cent.
In response, the IRD said the proposal would impose an “unnecessary” compliance burden on employers.
According to the FEC report, the IRD “believes the most efficient approach to the issue raised by the petitioner is to place the obligation of providing the correct PIR either on the employee or itself”.
Under new legislation passed last year the IRD is now able to match income and correct KiwiSaver PIRs with any under- or over-charged tax paid or refunded in the financial year-end wash-up. (Historical KiwiSaver tax over-payments prior to the 2020/21 fiscal year, however, won’t be refunded.)
Although the issue is largely resolved, Bland said the IRD could make life easier for auto-enrolled members by allowing self-reported PIRs (via employers) while the IRD could correct any mistakes directly with the relevant KiwiSaver provider.
“Currently, Inland Revenue attempts to contact the KiwiSaver member,” the FEC report says. “However, for various reasons, young people are often difficult to contact.”
Elsewhere, the parliamentary committee, chaired by Duncan Webb, refused petitions calling for early access to KiwiSaver to cover the costs of redundancy, establishing a business or sex-change surgery (in NZ or offshore).
“We do not support extending the current limited grounds on which a KiwiSaver member can make an early withdrawal from their retirement savings in KiwiSaver,” the report says. “We believe that doing so would undermine the original purpose of KiwiSaver.”
A further three petitions requested early access to KiwiSaver assets transferred from Australian superannuation funds.
Under the current system any Australian super money shifted to KiwiSaver accounts must be ring-fenced from first-home and most other early withdrawal options.
While the Australian government has recently opened up super to fund first-home purchases in some circumstances, the FEC report found it could not translate easily to KiwiSaver.
“Inland Revenue explained that these differences are preventing any progress on the specific issue addressed by the petition. Officials have raised these concerns with their Australian counterparts. The committee was told that Australian officials were not supportive of amending the arrangement between the countries in a manner that would address the petitioner’s concerns,” the report says.
“Without the support of the Australian Government, there is little Inland Revenue can do to address the issue. The biggest problem would be addressing the tax clawback.”
Australian super transfers to KiwiSaver (and vice-versa) must comply with the Trans-Tasman Retirement Savings Portability Arrangement negotiated in 2010.
“The arrangement was agreed after extensive dialogue with officials in Australia, with each point entered into as an effective compromise between the two schemes,” the FEC report says. “The arrangement therefore cannot be amended without further negotiation and legislative change.”