KEY POINTS:
April 1 is usually associated with pranks and practical jokes, but this year many employers required to kick in to KiwiSaver will not be smiling.
From Tuesday bosses have to contribute 1 per cent of the salary of every staff member in KiwiSaver, rising by 1 per cent a year to a cap of 4 per cent by 2011.
For many of the 500,000 people who have already signed up to KiwiSaver it will be a small windfall from the boss - though they can't access it until they are 65 - but for employers it has caused more of a headache than anything else.
Apart from the added administration, bosses will now have to decide how they balance out total remuneration between those who have joined KiwiSaver and those who have not.
Added to that is a legislative error made by the Government when drafting KiwiSaver which means that 5000 to 6000 employers will not be able to gain a full tax rebate for their contributions for the first year until April next year.
The Government announced the employer contribution in last year's May Budget, springing the announcement on the business community without much in the way of consultation.
For employees the bosses' input sweetened the scheme's already promised incentives of a $1000 kick-start and a Government contribution matching those who join for up to $20 a week or a maximum of $1040 a year.
The blow to employers was softened with a matched tax rebate of up to $20 a week which will cover most employees for the first year's 1 per cent contribution and those on an income of up to $52,000 for the second year's 2 per cent contribution.
It will be the third year when the cost of the employee contribution really begins to hit employers in the pocket, although some have already opted to go straight to the 4 per cent level.
Simpson Grierson partner and specialist in employment law John Rooney said he had been flooded by queries about KiwiSaver from companies worried about how to adapt to the employer contribution changes.
Rooney said employers were keen to ensure there was equality between staff members but it was a complicated situation.
He said some were considering making the contribution part of employees' total remuneration packages, with those who opted in getting the money in their KiwiSaver accounts and those who did not getting cash in hand.
But for that to happen the company had to get the approval of all staff members and due to the shortness of time he was not aware of any that had managed to do this before the April 1 deadline.
Others had just decided to pay the 1 per cent on top of their employees' salary and those who were not in KiwiSaver would just miss out.
Rooney said it was not clear what the split was between the two options, but it was mainly larger companies trying to make it part of the remuneration package.
"By the end of the year we should have a much better idea of how things stand."
Employers and Manufacturing Association advisory services manager David Lowe described the introduction of the employer contribution as a headache for bosses.
He said the lack of guidance on the issue from the Government had made it tough and many employers were trying to get their heads around how much it was all going to cost them - not just in contributions but also time spent on getting KiwiSaver sorted.
"Employers, like everybody else, on the whole see KiwiSaver as a good idea - it's just a shame the latest changes were introduced in the way they were without the proper involvement of employers."
Lowe said the legislation issue had also annoyed employers as the problem had been discovered in January and up until Thursday last week there had been little acknowledgment how the Government would remedy the situation.
Then Finance Minister Michael Cullen announced that a square-up process would be introduced and affected employers would be able to make an additional claim at the end of April next year once the legislation has been fixed.
It is another sign that the KiwiSaver legislation has been rushed through to suit political agendas rather than the practical abilities of the Inland Revenue Department or product providers.
But despite the hiccups, the take-up has been far higher than the Government predicted.
Initial forecasts were for 270,000 in the first year but only eight months have passed and already more than 500,000 are signed up.
Retirement Commissioner Diana Crossan said she was not expecting the employer contributions to produce a flurry but the added incentive would encourage some people to join.
"We know from before KiwiSaver, superannuation schemes with employer contributions didn't attract everyone. But it will be enough to open the gate for some."She said the key decision people needed to make was whether they could afford it.
Rising petrol, food and accommodation prices are already putting the squeeze on some people and Crossan said she would not be surprised to see some people deciding to take contribution holidays.
The holiday can be taken after the saver has been in the scheme for one year although those who face financial hardship can opt for it sooner if they meet certain requirements.
Crossan said it was difficult to predict how many would decide to take a holiday and it was up to personal choice and priorities.
But, she said, the commission encouraged people to undertake an annual assessment of their assets and liabilities and KiwiSaver should be included in that.
But for those who decide to opt for KiwiSaver, the hardest choice seems to be deciding which provider and which scheme to go with.
This is perhaps not surprising as there are 33 providers and 48 schemes to chose from. Latest figures reveal 43 per cent of those in KiwiSaver have opted in via a provider, a further 20 per cent have opted in via their employer and 37 per cent have been auto-enrolled.
A report on the first six months of KiwiSaver by the IRD shows many of the unexpected numbers of people joining have come through the auto-enrolment option where workers are put into one of the six default KiwiSaver schemes when they change jobs unless they actively opt out.
The report also predicted that now the initial rush of people opting in has passed, more people would come through the auto-enrolment process.
But one aspect of the process which has many advisers worried is that very few of those who come via that route actually go on to select a scheme appropriate to their own personal risk level.
The report found that of those who were auto-enrolled, only 8 per cent had gone on to select a scheme.
Acumen financial adviser Lisa Dudson said it was a problem.
"As soon as they get into a default fund it is out of sight and out of mind. At the moment it has not been a bad thing to be in a default fund but now there are so many good opportunities for buying on the sharemarket.
"The bottom line is research has shown there are better returns over the longer term for those funds with more growth assets in them."
Dudson said people were getting too hung up on fees which were putting them off selecting a provider when the most important aspect was choosing the right scheme to fit their risk appetite.
"It's six of one and a half-dozen of the other when it comes to providers - one will be up one year and the other the next. The most important question people need to answer is what type of fund?"
The Government's sorted website has a risk-profile assessment people can use to figure this out, as does the Consumer Institute's Consumersaver site. Many providers offer their own.
Generally there are three main fund or scheme types - conservative or low risk which the six default providers fit into, medium risk or balanced and high risk or growth.
Which category a scheme fits into depends on the level of growth assets such as property and shares which it invests in.
According to the sorted site, a low-risk scheme is anything with up to 40 per cent invested in growth assets, while medium-risk or balanced funds have anywhere between 40 and 70 per cent in growth assets and growth funds can have between 70 per cent and 100 per cent in growth assets depending on how aggressive they are.
One fear for some thinking about joining or switching to a higher-risk fund with more shares is the recent volatility in the markets.
But AMP Capital's head of investment strategy, Leo Krippner, said people needed to keep in mind that KiwiSaver was a long-term investment strategy.
"I think people really need to stay focused and rational.
"If you join KiwiSaver at the moment, the return you get on your actual investment is going to be very high simply because of the Government contribution."
He said a scheme would have to lose two-thirds of its value before KiwiSavers actually started to make losses on any of their own money, but people needed to keep in mind that KiwiSaver was about building up a nest egg for when they retire.
"Most people will be in for 10, 20 or 40 years - the recent volatility will be a small blip on that timeframe. People need to treat it as a long-term savings scheme for retirement."
Krippner said savers should focus on picking the right scheme and then stick with it.
"So long as people have got 10 years or more to retire, they should just stick to the vehicle they thought was appropriate initially.
"If you don't like the fluctuations you should chose a less risky product and stick with that for the long term."
Others worried about their provider collapsing since the recent finance company failures should also take heed of several safety nets in place.
Fiona Oliver, chief operating officer of Westpac investment arm BT Funds Management, said people should be reassured by the fact that every KiwiSaver scheme was subject to rigorous regulation and monitoring and must have at least one independent trustee.
"Under section 116 of the KiwiSaver Act 2006, schemes are established and governed by a trust deed and have at least one independent trustee who ensures that the scheme is operated according to the trust deed and the law."
THE NUMBERS
33 KiwiSaver providers
48 available schemes
501,508 members (at March 20)
$595m Total amount invested in KiwiSaver (at March 11)
