KEY POINTS:
I joined KiwiSaver under the understanding that the maximum I would be required to commit to it would be 4 per cent of my wage.
As our annual salary reviews are now due my employer is saying that those of us in KiwiSaver will receive 1 per cent less than employees not in KiwiSaver, because they have to pay us a 1 per cent contribution.
This is despite their contribution being well under what they can claim back from the Government. (In fact even if their contribution went up to 4 per cent tomorrow, in my case they would still be able to claim the entire amount back.)
Their justification for this was that there are compliance costs involved for them with KiwiSaver, so that those of us in it should pay for it. This means that in another three years, when employer contributions are 4 per cent, I will be paid 4 per cent less than those not in KiwiSaver - effectively being forced to contribute 8 per cent of my wage.
I have tried to get help/answers from the IRD who told me to talk to the Department of Labour. The Department of Labour tell me if I'm not happy I can ask my employer to go to mediation and then possibly take the matter to the Employment Relations Authority.
However, I can't seem to get anyone to give me any advice on whether or not the employer can do this. I have also tried asking several Government ministers and weeks later have received no reply.
So my options are:
* Accept that my KiwiSaver contributions will soon have to be 8 per cent while I am working for this employer.
* Get into an aggravating situation with my employer, which is extremely stressful, and no one seems to have any idea of what the outcome will be.
I feel I have been completely misled regarding what joining KiwiSaver would involve for me. I wish I had never joined but am unable to pull out - despite not having been made aware of this possible increased cost to me when I joined.
How many others have been caught out like this, and how did the Government let it happen?
It happened - like many other details around KiwiSaver - because the Government brought the scheme in too quickly. But the good news is that employers will no longer be able to pay KiwiSaver employees less than others. See the story on page A4 of today's paper.
The proposed change to the Employment Relations Act is expected to take effect in late July or early August, so if you haven't signed your contract yet, try to hold out for a few more weeks. Hopefully, after reading about the change, your employer might try to retrieve a little staff loyalty by altering their policy now.
If you have already signed, Labour Minister Trevor Mallard says, "I'm not sure that we'll be able to help her on a backdated basis. If the employer has been transparent about getting their $20 a week, and yet she's not getting the 1 per cent pay increase, she'll have to wait until next time she gets an increase" for the Government's changes to help. "But if they've hidden it away, that's probably bargaining in bad faith."
It sounds in your case as if nothing has been hidden. Nonetheless, your employer's behaviour seems mean.
Mallard says: "I question the veracity of claims like the one your reader has been told - that employees should take a 1 per cent salary drop or forgo a salary increase if they are in KiwiSaver - in order to cover the employer's compliance costs for KiwiSaver."
He adds that he has spoken to about five employers, including "one very big company", that have used a similar strategy to your bosses. Often, the idea came from HR people "rather than the chief executive, who thinks of the reputation of the company as a whole. The biggest company very quickly changed policy."
A couple more points:
* Even if this change hadn't happened, you wouldn't be as caught in KiwiSaver as you think. After 12 months in the scheme you could take a contributions holiday and put in a smaller amount or nothing - and continue to do that all the way to NZ Super age. The scheme is more flexible than many realise.
* I suspect that one reason you haven't had much joy from your complaints to Government departments and ministers is that they have received a number of letters like yours - including a couple forwarded by me - and have been considering what to do about it. For an example of another reader caught in a similar situation to yours, read on.
As part of a recent salary review, I was asked to sign a letter stating that, should I join KiwiSaver, I agree to the company deducting from my salary any employer contribution that exceeded the Government payment.
Specifically, they say the Government has provided $1043 to the company to pay the employer contribution. Thus in the first year my employer is required to contribute 1 per cent ($800), which is less than the Government payment of $1043, so no problem.
In the second year, they contribute 2 per cent ($1600), which is $557 more than the Government payment and therefore the company will deduct $557 from my salary.
In the third year, they contribute 3 per cent ($2400) which is $1357 from my salary. And in the fourth year it will be $2157 from my salary.
Is the company able to do this? I can't help feeling I am missing out. I am keen to join KiwiSaver. However, I will end up putting over 6 per cent of my salary in it.
I also have New Zealand shares and am keen to increase my holding in those, and make the decision myself what to buy, but I am not sure I can afford both.
Hopefully you can now - under the Government changes announced today - although Labour Minister Trevor Mallard says he hadn't yet considered the situation of people who have signed letters that cover several years.
"In my view, that letter would be part of the discussion next year when they are talking about pay rate changes. That's what I'm hoping will happen. If the employer is relatively open and fair, I would expect them to continue to be. But I can't guarantee that we'll sort someone who has contracted in that way."
Good luck with the negotiations next year. Let me know how you go.
While your employer might change policy to reflect the Government's changes, it might argue that its current policy is fair.
Why should it give more money to KiwiSaver employees than others?
Some would even argue that you are favoured over your non-KiwiSaver workmates because - unlike the reader who wrote the letter above - you get the benefit of the Government reimbursement to the company. What's more, employer contributions to KiwiSaver are not taxed, whereas payments in the hand to other employees are taxed.
When you look at your salary plus your KiwiSaver balance, you are receiving considerably more from the company and the Government than someone in the same job as you but not in KiwiSaver.
"That's the Business New Zealand school of thought," says Mallard. "They tend to look at total remuneration including the employer KiwiSaver contribution aspect."
But the Labour Government views it differently. "It's almost like a philosophical choice that we've made, about tilting the balance towards long-term saving. The total remuneration approach doesn't do that. That's what our policy is all about."
And some employers clearly agree with the Government, having embraced KiwiSaver as a way to help recruit and retain employees and to boost morale. Their moves include:
* Making larger employer contributions than the current compulsory 1 per cent of pay. In some cases employers are giving all employees $1043 a year, because the Government will reimburse that amount. Others are moving straight to 4 per cent employer contributions, even though that is not the compulsory level until April 2011.
* Contributing to KiwiSaver employees aged under 18, even though it's not compulsory for employers to do so, and they don't receive any Government reimbursement for it.
* Bringing in experts to present employee seminars on KiwiSaver.
* Buying bulk supplies of books about KiwiSaver to distribute to employees.
An example is Progressive Enterprises - which owns Foodtown, Woolworths and Countdown supermarkets. It's offering employees a choice of contributing 2 per cent or 4 per cent, while it contributes 2 per cent. And it's including under-18s in the deal.
The "2 per cent plus 2 per cent" arrangement is not widely known, but it is permitted until April 2010. After that, both employer and employees contribute 3 per cent for a year, and then 4 per cent from April 2011 on.
Progressive hasn't yet decided whether it will continue with this arrangement next year, but a spokeswoman says it probably will.
Says Mallard: "They realise that in some cases they have relatively low-income people who might struggle to do the 4 per cent. It's a straight recruitment and retention thing."
Higher up the income scale, another large employer told me recently that their generous employer contributions to KiwiSaver attracted considerable interest when they were recruiting university graduates.
Getting back to your letter, you don't have to choose between direct investment in shares and KiwiSaver. With one provider, ABN Amro Craigs, you can choose from a range of New Zealand and overseas shares to hold within your KiwiSaver account.
Nonetheless, if you can afford to save more than you need to in KiwiSaver, I would suggest you do that extra investing outside KiwiSaver. Otherwise, you tie up money unnecessarily, and you never know when you might want to use it. And beyond 4 per cent of your pay, you won't receive any extra KiwiSaver incentives.
Mary Holm is a seminar presenter and author. Her website is www.maryholm.com. Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (pref daytime) phone number. Sorry, but Mary cannot answer all questions or give financial advice.
