KiwiSaver

The “total remuneration” approach to KiwiSaver has been effectively banned in legislation rushed through Parliament under urgency last week.In essence, the new law says a KiwiSaver member cannot be offered lesser terms (or be otherwise disadvantaged) in comparison with a “comparable” non-member employee of similar skills, experience and circumstances.

The government’s rapid U-turn on total remuneration and KiwiSaver isn’t good law and shouldn’t have been rushed through Parliament, Chapman Tripp says.

It agrees there is a legitimate policy debate around whether or not total remuneration should be allowed.

Proponents say this approach ensures non-KiwiSaver members aren’t disadvantaged and total remuneration also gives employers certainty about their wage and salary costs.

On the other hand, KiwiSaver becomes a less attractive proposition for total remuneration employees as they bear a greater cost if they join the scheme, and they don’t get any “free money” from their employer. This cost (and disincentive to join) will grow, as the compulsory employer contribution moves from 1% to 4% over the next three years. Government has also expressed concern that total remuneration allows employers, if they choose, to pocket the Government funded employer tax credit when it is the employees who actually meet the costs of the scheme.

Chapman Tripp says because the law was rushed it has a number of technical problems and unintended consequences which have the potential to create real uncertainty, and which will need to be fixed.

Employers are increasingly unwilling to provide one-on-one professional financial assistance to their employees in superannuation plans, according to a survey released last week by the Retirement Policy and Research Centre (RPPC).

The Top 100 report, which surveyed 52 of New Zealand’s largest employers, found only 25% of respondents offered one-to-one help with their employees’ retirement saving decisions compared to 40% who provided such a service in the 2003 survey.

“Very few employees had access to ‘one-to-one’ help – only 17% by all employees,” the survey says. “The highest proportion was 31% for overseas-owned employers.”

However, the 2008 RPPC study also found that 75% of employers provided written help to their employees on retirement savings versus only 55% in its 2003 survey.

Of those employers who gave some kind of assistance with superannuation decisions to their employees, just over 60% offered access to external providers and/or employee presentations – statistics which were broadly similar in both the 2003 and 2008 reports.

In the 2008 survey only 15% of employers said they did not offer any help to their employees on retirement savings decisions compared to 32% in the 2003 study.

And those who offered no help were also unlikely to pay to provide such services for their employees in the future, according to the study.

“Overall, employers that said they offered no help were distinctly cool to the idea that they might pay for help and their willingness was particularly marked where there was no open plan,” the 2008 RPPC report says.

As well, the survey found the introduction of KiwiSaver has not persuaded these employers to start paying for help.

According to Michael Littlewood, who heads the RPPC project, overall the survey showed that the introduction of KiwiSaver would lead to the closure of further existing superannuation schemes.

The 2008 survey found that 12 employers had already decided to close existing schemes because of KiwiSaver with 14 applying for exempt status, 12 adding a complying fund to their existing schemes and 17 “taking other steps of various kinds”.

Only one employer in the survey group has converted an existing superannuation fund into a KiwiSaver scheme.

“I expect there will eventually only be 20-30 superannuation schemes in New Zealand – including KiwiSaver providers,” Littlewood said.

He said as KiwiSaver takes precedence in the workplace employers could become “disengaged” for their workers’ superannuation issues, leading to a reduction in education and information services.