Government to include small firms in savings scheme

The Government has dropped plans to exempt small firms with up to five employees from having to offer its KiwiSaver workplace savings scheme.

As originally designed 18 months ago, the scheme would not have applied to "micro" businesses, which represent about 86 per cent of all firms and 23 per cent of employees.

"In the end we didn't see a particular reason why there had to be an exemption for micro firms, because we have tried to simplify as best we can the process for employers," Finance Minister Michael Cullen said yesterday.

Membership is voluntary and there is no requirement on employers to subsidise employees' savings, which can be set at either 4 or 8 per cent of their pre-tax wages or salaries.

New employees are automatically enrolled and have up to six weeks to opt out by notifying the Inland Revenue Department (IRD), which will inform the employer. Existing employees can opt in if they wish.

The scheme uses the tax collection system already in place to collect PAYE, ACC levies and student loan repayments. The money is then passed on to the chosen fund manager.

Employers are responsible for distributing to new employees, and existing employees who want in, an information pack, supplied by the IRD, outlining how the scheme works.

They have to deduct employees' contributions and forward them to the IRD along with PAYE tax.

They must automatically enrol all new employees, including seasonal, casual and part-time workers and make deductions from the next pay period after 11 weeks in employment.

Although employers are not obliged to subsidise employee savings Cullen said he was hopeful that in employment negotiations employees and unions would seek employer contributions over time.

The Engineering, Printing and Manufacturing Union (EPMU) said it would be putting up claims in all negotiations for employer contributions to the scheme.

Business New Zealand chief executive Phil O'Reilly said, "You threaten the goodwill of employers pretty quickly if on the day it is introduced it is turned into an industrial relations problem. Employers will look askance at those kinds of statements."

But O'Reilly said the Government had been listening to employer concerns about compliance costs.

There were already quite a few things an employer had to do when a new employee started anyway.

"My immediate impression is that it is promising but we will have to test it with small businesses and look through the details for fish-hooks.

"On the face of it the compliance cost is not evidently so massive that you would just say there is absolutely no way small business should be involved," O'Reilly said.

EPMU national secretary Andrew Little said the minimum contribution of 4 per cent would be a barrier to some workers taking advantage of the scheme.

Investment Savings and Insurance Association chief executive Vance Arkinstall agreed a 4 per cent minimum might set too high a hurdle for many potential savers, but welcomed the scheme overall.

Super savvy

* KiwiSaver workplace savings scheme is due to come into effect in April next year.

* Employees can opt to contribute 4 per cent or 8 per cent of their pre-tax wages.

* The Government expects 25 per cent of employees will eventually join.

* Savings are portable but locked in until retirement, except for income-tested first home buyers.

* Employer contributions are optional but the largest union, EPMU, will be pressing for them.

* Over five years it will cost the taxpayer an estimated $700 million.