FINANCIAL MANAGEMENT : KiwiSaver – Coming ready or not

When it comes to attitudes towards KiwiSaver, employers fall into roughly one of four groups. There are large organisations with an existing superannuation scheme which are learning to balance this against KiwiSaver compliance. There are those without an existing scheme which are either irritated or philosophical that KiwiSaver has suddenly provided them with one to manage.
Medium-sized businesses are meanwhile figuring out how to make KiwiSaver work for mixture of full-time, part-time and casual staff. And in the fourth group are those small businesses which wonder if KiwiSaver compliance coupled with the new Holidays Act might just be the final nail in their financial coffin.
“We’re offended. It’s wrong that KiwiSaver contributions are compulsory for employers – it’s not very good thing for cashflow,” says the owner of one small professional services firm with 12 employees.
Another wonders if her business will even be here this time next year: “Prices are going to have to go up so we can cope with paying for KiwiSaver and the new Holidays Act. Our customers may not be prepared to pay those prices,” she says.
David Lowe, advisory services manager for the Employers and Manufacturers Association (EMA), says there are number of technical issues still to be resolved around how KiwiSaver works. What is known is that by 2011 all employers will be contributing four percent of gross salary for employee KiwiSaver members, either as direct deduction or through other incentives that comply with the scheme.
“Like all sectors of the community, employers have mixed views of KiwiSaver. Some think it is good scheme and are encouraging their staff to adopt it; others don’t like it mainly because of the cost. The money has to come from somewhere and not all businesses are doing well at the moment,” says Lowe.
He says the double whammy is that if employers start taking away employee bene­fits to make room for KiwiSaver, they are likely to lose staff and have trouble finding more. KiwiSaver legislation as it stands at the moment allows employers to offer their KiwiSaver contribution as part of an entire remuneration package, and Lowe says documenting this is important – if an employee doesn’t join KiwiSaver initially then decides to later on, the employer needs to have employer contributions documented as benefit in the remuneration package. (There have been some changes as result of recent legislation which mean employers will not be required to contribute to both KiwiSaver and their own superannuation schemes where certain conditions apply.)
Mike Williams, payroll manager for Vodafone, says Vodafone made decision to offer employees four percent KiwiSaver contribution from the outset, rather than wait until 2011. New Vodafone employees now have choice between Vodafone’s own Mercer-designed superannuation fund and Vodafone KiwiSaver contributions. Because Vodafone has its own scheme, new Vodafone employees do not have to be automatically enrolled with KiwiSaver as is the norm, says Williams. If an existing employee on Vodafone’s scheme decides to opt in to KiwiSaver, Vodafone asks them to sign variation of letter of employment agreement – Vodafone then contributes to the employee’s KiwiSaver scheme instead, and employees can keep contributing to the Vodafone scheme personally if they choose to.
Williams says Vodafone has more KiwiSaver members than it expected to have, due to positive perception of the scheme by young employees.
“There was quite lot of scepticism when it first came out, but we then found that quite number of younger people decided it was good option. If they don’t like anything about it, it’s the lock-in to age 65. Others don’t want to contribute themselves because the Vodafone scheme doesn’t require them to do that,” says Williams.
He says because Vodafone already had scheme in place it was able to step up to the KiwiSaver mark and offer four percent contribution from the outset, albeit at some expense (hidden costs include taking legal advice, allocating payroll and HR staff time, and setting up or upgrading payroll software systems). However, the kickbacks include increased employee goodwill and lower compliance costs.
“Go straight to four percent if you can,” says Williams.

KiwiSaver to date
At the time of writing, some 317,000 New Zealanders had become KiwiSaver members, number predicted to grow exponentially as employer contributions become compulsory from April. At seminar for the Recruitment and Consulting Services Association, Sasha Grujic, national manager for KiwiSaver provider EO Financial Services, said large majority of KiwiSaver enrolments are “active choice” (where the employee names preferred KiwiSaver provider as opposed to being allocated one of the six default providers). As to how employees choose that provider, KiwiSaver Sentiment Study from provider Mercer found that nearly half of 508 New Zealand workers surveyed trust their employer as the best source of information relating to the range of KiwiSaver providers (presently some 33 organisations).
Bernie O’Brien, head of Mercer New Zealand says, to degree, employers have responsibility to encourage employees to take active steps towards improving their financial wellbeing. Initiatives include allowing employees time off to obtain financial advice, providing access to financial advisor or financial education, as well as reviewing the company’s reward systems and structures to ease the process of contribution to KiwiSaver.
“Not only is it way for employers to engage and retain employees, it may be major contributor to the success of KiwiSaver overall and encourage New Zealanders to be better prepared for retirement,” O’Brien says.
Does this mean employers are under moral obligation to promote KiwiSaver? The consensus is cautious ‘yes’. With the Government kickstart, tax incentives and provider interest, KiwiSaver far and away provides the best financial return for employees keen to develop retirement fund, say the consultants (see “A Practical Example”). However consultants and employer advocates acknowledge the “responsibility pill” can be bitter one to swallow for already responsible employers: EMA’s Lowe says while there was initially high degree of positivity towards KiwiSaver, this was halted by the arrival of costs employers were not consulted about and which were announced in year that seemed awash with new compliance costs.
“We canvassed around 2000 employers and the overwhelming feedback was that they were just KiwiSaver’d out. So much information is out there and lot of it is based on legislation not confirmed yet. About 10 percent of employers are actively encouraging KiwiSaver enrolment, most are neutral and three or four percent are actively discouraging. I don’t think there can be the expectation that all employers will be champions, but our advice to employers is ‘don’t do nothing’. Move to total employment package and turn your mind to how you will deal with KiwiSaver,” says Lowe.
Grujic and Lowe say employers have also reported issues around KiwiSaver administration. Lowe says he received call from an employer who believed in KiwiSaver so strongly they encouraged all 160 of their staff to join. Those staff then received their KiwiSaver statements from the same provider only to find that just two were correct. Some had no employer contributions on their statements, some had some, and some had all of them. Because of the scale of the problem, Lowe says he personally contacted the IRD call centre where people were very polite and understanding but couldn’t help.
“The IRD have been incredibly good in terms of trying to involve businesses with what they are doing but it would be shame if they got into bunker mentality while operationalising everything,” says Lowe.
Grujic says delays can occur because employee contributions to KiwiSaver tend to be made only after other IRD-processed employee deductions like child support.
“KiwiSaver providers

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