Initial and confirmed back-dated validation of invalid membership (section 18 and new section 59 of the KiwiSaver Act 2006)

2007 amendments to KiwiSaver cover initial and confirmed back-dated validation of invalid membership and insert new section 59.

Invalid KiwiSaver enrolments occur in a range of circumstances. This can happen, for example, when people join KiwiSaver who are not entitled to because they do not meet the residency requirements. Alternatively, they could be incorrectly automatically enrolled, perhaps because they are under 18 years of age or over the New Zealand superannuation qualification age. A new subpart 4 (sections 59A to 59D) has been added to Part 2 of the KiwiSaver Act (allocation of people to KiwiSaver Schemes) to provide rules for invalid KiwiSaver enrolments. The relevant sections are treated as coming into force on 1 July 2007.

Section 59A of the KiwiSaver Act describes the circumstances in which an enrolment is treated as invalid and to which the invalid enrolment rules apply. They are when:

  • a person does not meet the requirements of section 6 of the KiwiSaver Act - that is, at the time the person was automatically enrolled or opted in, he or she was not living or normally living in New Zealand 15 and was not a NewZealand citizen or entitled in terms of the Immigration Act 1987 to be in New Zealand indefinitely; or
  • a person who does not meet the requirements of the automatic enrolment rules has been automatically enrolled - for example, when the person is less than 18 years of age or is a casual employee; or
  • a person who is not entitled to opt in to KiwiSaver does so - for example, because the person is over the New Zealand superannuation qualification age or is already a member of a KiwiSaver scheme.

New section 59B specifies that the Commissioner or the relevant provider must be notified of an invalid enrolment as soon as practicable after it is discovered. The section also provides that, for a period of time, providers are able to treat as valid enrolments that have been identified as invalid as far as the administration of the fund is concerned. The time period for initial back-dated validation begins on the earliest of:

  • the day the Act applied; or
  • the automatic enrolment rules applied; or
  • the opt-in rules applied to the person.

The time period ends on the earliest of:

  • three months after the mistake was discovered by the KiwiSaver provider; or
  • three months after the provider was notified by the Commissioner or other person; or
  • the day that the provider pays the member's accumulation to the Commissioner.

New section 59C allows validation of a member's enrolment by the end of the time period of initial back-dated validation provided in section 59B if the person meets the rules for membership. This means that individuals who subsequently meet the membership criteria will have their membership validated. For individuals who should not be subject to the automatic enrolment rules, enrolment will be validated if they do not opt out and they are eligible to be a member.

This section will apply if at the time during the period specified in new section 59B, persons are eligible to be a member because they meet the requirements of section 6 and are:

  • less than the New Zealand Superannuation qualification age (65 years of age); and
  • have not opted out under the opt-out provisions in section 18, which have been extended to include persons invalidly automatically enrolled - the invalid enrolment will be validated by the Commissioner and the Commissioner must notify the provider of this.
Example 4

Sam finished school when he was 17 and started working for a builder. His employer automatically enrolled him into KiwiSaver. Six months later Sam's KiwiSaver provider became aware of the fact that although he was now 18, at the time he was automatically enrolled, he was only 17 years old (and the automatic enrolment rules should not have applied to him), so he had been invalidly enrolled. Sam will be validated as a member and remain enrolled as the opt-out period has expired.

New section 59D contains the refund process that will apply if the time period of initial validation ends and confirmation of backdated validation under section 59C has not occurred. The section sets out what the provider and Commissioner must do.

The provider must pay the member's accumulation to the Commissioner and immediately provide the Commissioner with:

  • notice of the amount of the contributions received by the provider directly and when they were received;
  • the amount paid out under mortgage diversion and when paid; and
  • the amounts of any permitted withdrawals, when they were paid, their type and the amount of any Crown contribution in the permitted withdrawal.

The Commissioner must refund:

  • the person's contributions received by the provider, minus any Crown contribution (such as the member tax credit) and amounts diverted under mortgage diversion or paid out by the provider as a permitted withdrawal; plus
  • any amount held by the Commissioner (but not yet passed to the provider) net of interest.

The total amount of contributions refunded will include interest. Interest is calculated using the formula in section 87. For the purposes of the calculation of interest on refunds arising from invalid KiwiSaver enrolments, "interest period" is defined as beginning on the day the Commissioner or the provider received the contribution and ending on the day the Commissioner pays the refund.

Section 59(D)(4) provides that the refund is to be made to the person, the person's employer, the Crown or any other person that made the contribution. The Commissioner can make the refund in proportion to the best estimate of what they contributed, less amounts diverted under mortgage diversion or paid as a permitted withdrawal.

Section 59(D)(5) provides for the treatment of members' accumulated interest paid to the Commissioner by the provider and any contributions in the holding account. The money is treated as public money, and the Commissioner is required to pay it into the Crown Bank Account.

Example 5

After Kate completed her final year of school she started working at her local bakery over the summer before starting university. Kate's employer automatically enrolled her into KiwiSaver. Two months later, Kate became aware that she had been automatically enrolled. As she was only 17 years old (under the age of eligibility for KiwiSaver membership) the enrolment was invalid.

Kate had already turned 18 by the time she became aware that she had been invalidly enrolled. This meant her enrolment could be validated or Kate could choose to apply for opt-out under section 18 (the extension period). An opt-out has to be made in the period that ends three months after the date on which the Commissioner receives the first contribution for Kate.


15 Excluding state services personnel serving outside New Zealand, employed on New Zealand terms and conditions and serving in a jurisdiction where offers of KiwiSaver scheme membership are lawful. Before the date of enactment, the requirement was that the member be personally present in New Zealand at the time of enrolment.