Total remuneration packages are where the employer contribution is paid as part of your salary, not on top of it.
Photo: RNZ / REECE BAKER
KiwiSaver providers and the Retirement Commission say there’s a simple way to help a lot of KiwiSaver members achieve a better outcome, if the government wants to pursue it.
They say a ban on total remuneration packages would make an immediate difference for many members and stop situations where employees stand not to benefit at all from planned increases to employer contribution requirements.
At the weekend, NZ First revealed it wanted to increase contributions to KiwiSaver and make it compulsory, alongside tax breaks to help members and employers cover the cost.
KiwiSaver providers said a simpler improvement to the scheme would make it impossible for employers to bundle KiwiSaver contributions into a total remuneration package. This is where, instead of receiving an employer contribution on top of your salary, it is paid as part of it.
Someone who is paid $100,000 on a total remuneration salary, for example, has $6000 deducted as their three percent contribution and the employer’s three percent. Someone who is not paid in total remuneration has only $3000 deducted for their contribution and the employer’s contribution is paid on top.
This is currently legal, as long as the employee agrees, but it means the employee does not benefit as the employer contribution increases, unless there is a corresponding increase in their salary.
Koura Wealth founder Rupert Carlyon said eliminating this option would have a big impact on New Zealanders.
“That’s something that could be done tomorrow, if they really want to,” he said. “It doesn’t require a massive increase in costs for people or for companies.
“It’s a simple change that could be made immediately. Why don’t they do that?
“It would make the biggest difference of all.”
Retirement Commissioner Jane Wrightson agreed.
“Under a total remuneration model, individuals receive less ‘in their hand’ as current compensation,” she said. “The removal of the incentive that is the employer contribution on top of salary or wages goes against the ‘spirit’ of the scheme.
“Our research finds that almost half of employers use a total remuneration approach for at least some of their employees, with 25 percent using a total remuneration approach for all employees and a further 20 percent using a total remuneration approach for some of their employees.”
Pie Funds chief executive Ana-Marie Lockyer also supported the idea.
“This does further erode the incentive for employees to contribute to KiwiSaver, as it all comes out of their take-home pay and was never the intent, when KiwiSaver was introduced.
“Total remuneration packages makes it very difficult for the inevitable future changes to contribution rates to benefit employees on these schemes in the same way as non-total rem employees, so this absolutely needs to be addressed for New Zealanders to get the benefit of Winston’s increases, if they go ahead.
“This will ensure particularly lower income earners can focus on what they need to earn from their wages and know that their retirement savings are building outside of this, rather than eating into it. This is something they got right across the Tasman.”
The country’s biggest KiwiSaver provider, ANZ, said it had no comment to make. It is understood to have some staff paid via a total remuneration structure.
Finance Minister Nicola Willis told the Financial Services Council conference in Auckland on Wednesday that every political party would likely go into the next election with a KiwiSaver policy.
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