Nearly half of employers are using a total remuneration approach when it comes to KiwiSaver contributions. Photo / NZME
Nearly half of employers are using a total remuneration approach when it comes to KiwiSaver contributions. Photo / NZME
New research has revealed how employers structure your KiwiSaver contributions could be leaving you with less money in your pocket.
Te Ara Ahunga Ora Retirement Commission released its findings this morning from its KiwiSaver Remuneration research which looked at how frequently employers included KiwiSaver contributions as part of an employee’stotal remuneration rather than on top of their earnings.
The research, which surveyed 306 small, medium and large organisations nationwide, found 45 per cent use a total remuneration approach to KiwiSaver for at least some employees.
As an example, if an employee is being remunerated at $100,000 per annum and has taken up the option to contribute to KiwiSaver at 3 per cent, an earnings plus KiwiSaver approach would leave the employee compensation of $97,000 as well as $6000 of KiwiSaver contributions ($3000 of their own contributions and $3000 of employer contributions).
This approach would cost an employer $103,000 per annum.
However, if the same employee is offered $100,000 as a total remuneration package, they would receive only $94,000 as current compensation, and the same $6000 of KiwiSaver contributions, costing their employer $100,000 p.a.
The findings showed that 25 per cent of employers always include employer KiwiSaver contributions as part of total remuneration, while a further 20 per cent adopt both approaches.
The KiwiSaver Act requires New Zealand employers to contribute a minimum of 3 per cent of an employee’s gross pay if the employee is a contributing member of KiwiSaver.
Sixty per cent of respondents cited the reason they use a total remuneration approach was because it was simpler from an accounting perspective, while 21 per cent admitted it was cheaper for their business.
“They’re honest at least,” Suzy Morrissey, director of policy at the Retirement Commission, quipped when speaking to the Herald.
Morrissey said the prevalence of employers not paying KiwiSaver on top of earnings was more widespread than they realised.
“There was some research in 2015, so we can see it’s [the use of the total remuneration approach which has] increased,” she said.
“It’s a reminder that the legislation speaks to earnings plus KiwiSaver unless you undertake good faith bargaining and come to a different outcome.
“So I guess the question for employers is how do they put their packages together and do they undertake good faith bargaining with potential candidates when they’re making an offer?”
But Morrissey questioned just how realistic this was for people who were in more junior roles.
“The underlining then is what power do you have as a potential employee? Do you have sufficient bargaining power to have good faith bargaining with a potential employer?”
Morrissey added that the research “does suggest that people who’ve got slightly higher bargaining power maybe are getting those earnings plus KiwiSaver contracts.”
She said job candidates need to be mindful of having an understanding of what they were signing, what they were being offered and how that remuneration was structured.
“I think it raises the question of whether the legislation is written in a way that really supports people to undertake savings for a retirement.”
Suzy Morrissey, director of policy at the Retirement Commission. Photo / Supplied
Research from the Financial Markets Authority shows while KiwiSaver membership is high, with more than three million members, representing around 96 per cent of the working-age population, “non-contribution” rates were also high at around 39 per cent of members not currently contributing to their KiwiSaver accounts.
“It’s not helpful to encourage savings to have the total remuneration approach being used because it does impact what people’s take-home pay is,” Morrissey said.
“The idea is that the employer matching is meant to be an incentive for people to contribute to their KiwiSaver.
“If lots of employers are using this total remuneration approach and effectively employees aren’t getting that incentive to contribute to KiwiSaver, [then] is that a reason for the million people that aren’t contributing in any given year?” she said.
“If you’re on the average median wage you personally might really notice that difference in take-home pay.”
So is change needed to the KiwiSaver Act?
“We’d like to see that,” Morrissey said.
“It’s down to ministers to consider whether legislation change is needed to make sure employer contributions are always on top of earnings.”
Retirement Commissioner Jane Wrightson said it was disappointing to see almost half of employers using a total remuneration for at least some of their employees.
“This is not how KiwiSaver is designed to operate, as the legislation clearly states that compulsory contributions must be paid on top of gross salary or wages except to extent that parties otherwise agree,” she said.
“However, it is not legislatively prohibited so long as the outcome is the result of good faith bargaining.”
