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KiwiSaver’s Achilles heel impacting Kiwis’ retirement

28 April 2023

For those who knew me at high school, it would be fair to say I was never up for the yearly academic prize when it came to my scholastic outcomes. In my defence, I hung out with some very bright lads who when I asked: “have you done much study for the maths exam?” would invariably reply “no not much” or “nah, she’ll be right”.  For some reason they would pass with flying colours while I reaped the reward of the effort I put in, which was very little on both counts.

I learnt two valuable lessons:

1 Don’t believe your mates when they say they weren’t studying because they were, it just wasn’t very cool to admit it. 

2 If you keep doing the same thing and expect a different outcome well that’s a sign of stupidity. A lesson that has stuck with me throughout my career.

The latter came to mind when I read the recently released report by Te Ara Ahunga Ora the Retirement Commission called “Prevalence of the Total Remuneration Model of KiwiSaver”.

The desktop questionnaire looked at how employers were facilitating KiwiSaver through their businesses. It dug into three key areas around how KiwiSaver was integrated into staff remuneration: on top of wages or salary, a total remuneration approach, or a mix of both.

I have been privileged to be involved with KiwiSaver since its inception. One thing that disappointed me, when it was finally legislated and took effect in July 2007, was the lobbying from many employers and organisations to the government to allow them to avoid contributing on top of wages to KiwiSaver members in some circumstances.

Non-contributing members of KiwiSaver have been rising for many years and, as at the end of March, 1.2 million were not contributing a cent. While there are various reasons for this, I believe a reasonable number are because of how Kiwis are being employed. By that, I mean some employers have urged staff to sign employment agreements with pay that includes both employer and employee KiwiSaver contributions, or moved to long-term contracts. In principle, this sounds ok: you get to choose how to use the 3% ‘pay rise’ you would have got. You could save it via KiwiSaver, pay more on the mortgage or just spend it. But more on this later. However, those on contracts, the self-employed in particular, did not get KiwiSaver as part of that income unless they were savvy enough to include it in their contract.

Only a few months ago I was banging this same old drum in another article, as I felt sure employers were not meeting the spirit of the KiwiSaver legislation. Employers are required to contribute a minimum of an employee’s gross pay if the employee is a member of KiwiSaver or where, in good faith, the employer and employee agree on a total remuneration outcome. Hence the number of Kiwis not contributing.

I have been asking someone to do some research on this and the Commission has started the mahi in this area with their recent report. The insights are intriguing and actually ask more questions than they answer, to help Kiwis get to retirement in a better place than they are today, but it is a good start.

Here are some of the headline insights that I found of particular interest:

  • KiwiSaver membership is highest (55%) in organisations that use an ‘earnings plus KiwiSaver’ approach. No surprises here, who wouldn’t want to get an extra 3% from their employer?
  • When asking employers why they only use total remuneration, 60% said it was because of simplicity, but I suspect 21% answered this more frankly by saying it was cheaper.
  • 45% of employers use a total remuneration model for at least some employees. I mean how can that be a simple approach?
  • 88% of employers who considered changing to a total remuneration model sited contractual or legal reasons not to go forward with it. Most likely, I suspect, many of the entities that have staff in a collective contract with a union wouldn’t have a bar of it.
  • 55% of employers don’t use a total rem model because they didn’t know about it, or have always used their own model. My concern here is that more employers might now move to the a mixed or full remuneration model

So an interesting start. This research was conducted on-line and completed by 306 employers of different sizes.  The issue I have, while this starts to pull off the bandage and allow some sunlight on the wound, is that there is still much more to understand before a level of equality is reached.  For example only 7% of the total employers were large employers (100 staff or more) while 63% completed the questionnaire with 20 or fewer staff.

Just because staff are on contracts, casual, or part-time workers, should this determine if they miss out on KiwiSaver employer contributions?  I don’t think so, but 35% of employers believe this is a reason not to provide it. I also suspect that those doing this have staff who are not represented by a union.

Let’s look at it another way:

Jane works for XYZ company, is a full-time employee and paid an annual wage of $100,000 a year. She is a member of KiwiSaver and her employment contract says her employer will pay 3% on top of her wage, taking her to $103,000 total remuneration.

Michael is a contractor for the same company, doing the same job, however he only gets paid $100,000 because that is the contract he signed and the employer doesn’t have to include KiwiSaver contributions.

This just doesn’t seem fair and it appears that those who need that contribution the most (lower income workers) are being impacted the most.

A lot more mahi is needed to get more detailed research that will drive change and the Retirement Commission is a great place to get that independent research underway.  If not, we will keep repeating the second lesson I highlighted at the beginning of this article and continue to see, as Albert Einstein put it so graciously, “insanity is doing the same thing over and over again expecting a different result”. Let’s hope some common sense will prevail.

If you would like more information about how to get a little Mint in your KiwiSaver have a look at the InvestNow KiwiSaver Scheme. 

This article was written by a real person, with real life experiences, and uses storytelling to help make financial wellbeing interesting and, hopefully, create a smile or two along the way.

Disclaimer: David Boyle is Head of Sales and Marketing at Mint Asset Management Limited. The above article is intended to provide information and does not purport to give investment advice.

Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement here.

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