'Invalid' KiwiSaver account lands woman with $2000 bill

A woman who opted to close her KiwiSaver account when it was found to be invalid was upset to find that, not only could she not withdraw the remaining money but she had already taken more than she should have.

She complained to Financial Services Complaints Ltd, an external dispute resolution service. It has recently published a case note.

It said she had made four KiwiSaver financial hardship withdrawals between 2020 and 2024, to a total of just over $10,000.

But she had become concerned that her account had not been opened correctly. It had been opened before she was 18, without parental consent.

She had the option of validating the account retrospectively, to allow the balance to remain within it, but she opted to close it and have the money paid out.

Inland Revenue did this according to the rules for invalid accounts, which meant the employer and government contributions went back to her employers and the Crown.

She was left without any money in her account. It was also determined she had withdrawn $2000 more than her own personal contributions, and that money should have gone back to the employers and government.

The woman complained to FSCL and said the provider had a responsibility to explain the impact of hardship withdrawals. The provider said there was no legal requirement to give warnings about including employer contributions in hardship withdrawals, or about the remote possibility of repayment if an account was later ruled to be invalid.

FSCL said it reviewed the law, KiwiSaver rules and industry practice.

"The KiwiSaver Act has a validation process for accounts found to be invalid, so that members can keep the funds for their retirement. We considered it rare for an account to be found invalid and for the member not to want it validated. We noted that KiwiSaver providers must tell members certain things when early KiwiSaver withdrawals are made, but they are not required to warn about rare or remote scenarios.

"In our view, the possibility of reimbursing employer contributions if an account was later found to be invalid was too rare to require a warning."

It said the provider did not have an obligation to warn her of what could happen if her account was ruled invalid, and it was not fair to expect compensation.

The complaint was not upheld. She was not required to pay the $2000 back.

FSCL does not identify the people who complain to it, nor the organisations they complain about.

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