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.

Investors who have joined the KiwiSaver scheme generally think they made the right decision though they fret about future government meddling with the programme, according to an ING (NZ) survey.About 95% of those who joined the scheme say they made a good decision, according to the quarterly survey. Some 50% are concerned the government may significantly change or abolish KiwiSaver, down from 54% in the previous survey.

“If we are to keep seeing positive increases in the number of people joining KiwiSaver, the main political parties will need to continue to provide additional reassurance that the scheme, and the benefits that are on offer as part of the scheme, are here to stay,” said Steven Giannoulis, ING’s general manager of investor services.

More than 700,000 people had signed up to KiwiSaver retirement savings scheme as of its first 12 months ended this month. As at July 1,718,000 New Zealanders had enrolled, more than twice the forecast 275,000, as people were attracted to the scheme’s NZ$1,000 tax-free incentive, tax credits and fee subsidy.

The number of people joining the scheme because of concern about market volatility jumped to 17% from 7% in the previous survey. The NZX 50 Index has dropped 12% in the past three months, extending its 12 month slide to about 28%.

The survey was of 100 private investors aged 30 years or more, with disposable assets or investments of at least US$100,000. ING has more than 130,000 members enrolled in the scheme, amounting to 20% of the total.

In April alone there were 78,000 New Zealanders who joined KiwiSaver, in response to the government’s enhancements to the scheme. Finance Minister Michael Cullen
On April 1, the government introduced compulsory employer contributions and the government tax credits to support them.

Over 2,600 new KiwiSavers were signed up every day in April, making it the biggest month for KiwiSaver yet and taking total enrolments to 600,043 just 10 months after the scheme’s launch. Initial projections were for 270,000 people to sign up after the first full year.

“New Zealanders are jumping at the opportunity to save for their retirement in numbers that few people could have predicted,” finance Minister Michael Cullen said. “After 10 months we now have more than twice as many people in KiwiSaver than we predicted to after the first year.”

Cullen believes the scheme is a “major assault on income inequality in retirement” and the numbers show a massive expansion of people saving privately.

Revenue Minister Peter Dunn believes, one of the main factors behind KiwiSaver’s success has been the willingness of employers and workers to learn about the scheme and be patient as the government worked through teething problems.

“This time last year as we planned to announce the enhancements we were not expecting a response anywhere near this big. It is a credit to Inland Revenue, employers, scheme providers and KiwiSavers themselves that the implementation process has gone as smoothly as it has,” Dunn said.