KiwiSaver

The Sorted website has been updated to include information for employers about the changes to KiwiSaver which come into effect on 1 April.

From 1 April employees will be able to change their contribution to the scheme from 4% of their gross pay to 2%, while the compulsory employer contribution will increase from 1% to 2%.

“The new information is on the site early to give employers time to assess what the changes mean for them and their staff,� Retirement Commissioner Diana Crossan says.

“By using Sorted’s KiwiSaver calculators people can work out how a change in their contribution would affect their retirement savings and decide what’s best for them.�

Employers can also download two free KiwiSaver seminars and material needed to run them. The seminars are designed to help staff understand the savings scheme and decide if it’s right for them.

Constant legislative changes to KiwiSaver are detracting from the original message behind the scheme of savings awareness and financial literacy.

The Association of Superannuation Funds of New Zealand (ASFONZ), which promotes workplace savings, held two forums recently, in conjunction with Inland Revenue, which involved nearly all providers of KiwiSaver schemes.

The Auckland and Wellington forums discussed issues of concern among providers to allow the smooth rollout of KiwiSaver changes and workplace savings schemes.

There was strong feedback from providers that they are now looking to the government for a period of regulatory stability for KiwiSaver.

“Constant rule changes have been costly for providers, ultimately impacting on KiwiSavers through direct costs and through the extent of resources that providers have had to commit to accommodating the changes,� ASFONZ chair David Ireland says.

He believes providers have had to meet considerable compliance costs which deliver “little or no benefit to existing KiwiSaver members�.

While Ireland believes the government should not rush further changes, he believes it does need to address concerns about some unintended consequences of changes already made, and remove anomalies from the original KiwiSaver provisions.

These include the risk of consumers losing their first home buyers’ subsidy if they reduce their member contribution from the current 4% to the 2% rate from April 1, 2009.

“Building certainty for KiwiSaver members is extremely important at present, and not only because of current investment market underperformance.

“It is also because constant rule changes since KiwiSaver was first announced have limited the industry’s ability to develop value-add enhancements for consumers,� he says.

KiwiSaver was the only managed fund sector to grow in the three months to September this year, according to new figures published by the Reserve Bank.The latest Reserve Bank managed funds survey put total KiwiSaver funds under management at almost $1.8 billion at the end of September compared to just over $1 billion at June 30, 2008.

Over the same three-month period superannuation funds under management, other than KiwiSaver, fell by almost $1.3 billion to $18.6 billion and had shrunk by close to $4 billion in the 12 months to the end of September 2008.

The Reserve Bank figures also showed over the September quarter: life insurance funds dropped from $8 billion to $7.9 billion; unit trusts and GIFs were down almost $800 million, and; other managed funds (including charities and private funds) holding steady at about $16 billion.

In total, New Zealand’s managed fund sector had declined by almost $1.5 billion in the three months since June this year and was off by approximately $8 billion from the high point of $66.4 billion under management as at September 2007.

The Reserve Bank figures show KiwiSaver funds have invested roughly 60% in New Zealand assets with the rest offshore. Almost half of the KiwiSaver funds were invested in New Zealand cash and fixed interest assets with only $142 million placed in local equities and unit trusts with a further $79 million put into property.

The $700 million invested globally by KiwiSaver funds was not broken down by asset class in the Reserve Bank figures.

The Reserve Bank included KiwiSaver funds for the first time in the September managed funds survey. The report excludes KiwiSaver schemes with less than $500 million under management, however, the Bank said its statistics cover 95% of the market.

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The National Party’s proposed changes to KiwiSaver have some pros and cons for employers, consultancy firm Aventine says.
The negatives are that KiwiSaver rules keep changing meaning more work for employers to comply with the scheme. The fact that there have already been changes such as to salary sacrifice, within the scheme’s first year of operation have been a contentious point.

The key proposed changes in this area are to unwind the changes Labour made to the Employment Relations Act to stop employers from reducing remuneration because of KiwiSaver.

National is also proposing to make the two-plus-two option a permanent feature. Employees will be able to choose making contributions at either two or four or eight percent.

A key issue with this change is that the resulting benefits for people putting money into KiwiSaver will be lower at retirement age than under the current scheme.

“The resulting benefits that will emerge will be lower and in many cases, inadequate.

This will increase the likelihood of future changes, or put pressure on employers to put in place supplementary arrangements,� Aventine says.

The other concern for employers is that National is proposing to limit the compulsory employer subsidy to 2%, meaning it won’t increase after April 2010. Also it plans to eliminate the employer tax credit.

Aventine says this creates problems for employers that have adopted up to now, a more generous approach.

“Under National’s policy, any employer contributions above 2% will become taxable and therefore contributions will need to be split between those that are taxable and those that are not.�