Employer's Preferred Provider: To Choose Or Not To Choose… 

With the commencement of the KiwiSaver Act 2006 on 1 July 2007 employers should consider whether there are any legal risks in choosing a preferred provider for their employees.

KiwiSaver gives employers the ability to choose a KiwiSaver scheme (preferred provider), for its employees to become members should they not choose their own KiwiSaver scheme.  The scheme chosen must allow all new employees to join .

Choosing a preferred provider creates an additional statutory obligation on employers to provide the employee with an investment statement of that KiwiSaver scheme provider.  If the employee does not choose their own KiwiSaver scheme they will, by default, become a member of the employer's preferred provider (as opposed to one of the Government's six default providers).  The employer must also provide the employee with a statement advising them that they will be allocated to their employer’s preferred provider if they do not choose one for themselves.

Employers should by now have the information packs from the IRD.  An information pack must be given to all new employees (and existing employees that request one).  The KiwiSaver Act requires the information pack to contain a statement that “people should seek financial advice from a professional financial adviser (rather than an employer) if they want information in relation to:

(i) their personal financial circumstances; or

(ii) deciding whether to opt in or opt out or not; or

(iii) choosing a KiwiSaver scheme or investment product of a KiwiSaver scheme; or

(vi) the overall KiwiSaver scheme or its financial concepts”.

Are employers liable if the preferred provider does not perform well?

In the information packs there will be a statement that membership with KiwiSaver is at the member's own risk.  Employees should not be relying on their employers for financial advice. 

If an employer is just passing on information about KiwiSaver to employees or selecting a preferred provider the employer will not be liable as an investment advisor or promoter under the investment advisors and securities legislation. 

Employers should also avoid commenting about why they chose their preferred provider or predicting how that scheme may perform. 

Preferred providers may be an option, but do not forget the compulsory employer obligations…

From 1 July 2007 employers must, for any new employees:

• provide a KiwiSaver information pack if the employer is satisfied that the employee should be automatically enrolled;

• provide Inland Revenue with the names, IRD numbers and addresses of all new employees who want to join KiwiSaver;

• deduct from new employee's first pay, with the employee's PAYE, the KiwiSaver contributions and forward the contribution to Inland Revenue along with the PAYE;

• check the employee's 'opt-out' form and stop deductions from the employee's pay if the new employee decides to 'opt-out'; 

• refund any deductions made before the employer received the 'opt-out' form; and

• provide an investment statement if the employer has chosen a preferred provider and the employee has not signed up with a provider themselves.

For current employees, employers must:

• provide them with an information pack if they request one;

• on receipt of a deduction notice (a copy is found in the information pack), deduct from their pay in accordance with the contribution rate specified and forward the contribution to the Inland Revenue along with the PAYE;

• provide Inland Revenue with the names, IRD numbers and addresses of those who want to join KiwiSaver; and

• provide an investment statement to the employee, if the employer has chosen a preferred provider and the employee has not signed up with a provider themselves.

For more information, please contact:

Erin Davies
Partner
t: +64 9 979 2177
m: +64 29 622 2300
e: Erin Davies

Last updated: 20 October 2008

This article is intended to be brief in nature and should be used for information only. It should not be relied on as legal advice.