This article was published on 12 July 2008. Some information may be out of date.

Article and then two Q&As about the Government’s proposed changes to prevent employers from paying less to KiwiSaver employees than to other employees.
Article by Mary Holm in front section of NZ Herald, 12 July 2008

Employers will no longer be allowed to pay less to KiwiSaver employees than to those not in the scheme, under a move announced today by Labour Minister Trevor Mallard.

“There is no way that it is fair for one employee to be paid less each week in their take-home pay than an employee doing the same tasks, simply because they choose to be in KiwiSaver and the other employee doesn’t,” said Mallard.

Since April 1, when employers started contributing 1 per cent of pay to employees’ KiwiSaver accounts, some employers have given smaller pay rises to KiwiSaver members. They say this is to cover the costs of employer contributions — even though the government in most cases fully reimburses those contributions.

To stop this, the government plans to amend the Employment Relations Act “to make it unlawful to offer lesser terms and conditions to a KiwiSaver employee on the basis of their KiwiSaver membership. Such action would give rise to a personal grievance,” said Mallard.

The law change will take effect on the date the amendments are introduced into Parliament, probably in late July or early August, he said.

The change won’t affect employment agreements entered into before that date. KiwiSaver employees already working under contracts that give them lower pay than their non-KiwiSaver workmates will have to wait until their contracts expire to benefit from the change.

This is because “total remuneration” packages — under which employees can be given a pay rise as either cash or a KiwiSaver contribution — are currently legal. The KiwiSaver Act permits such arrangements if the employer and employee agreed to them after 13 December 2007. But Mallard’s proposed amendments will no longer allow that.

Some experts have said that total remuneration is fair. “Why should employees who don’t join KiwiSaver receive less in total from their employer?”, they ask.

However, Mallard says the government didn’t expect to see differences in take-home pay. “We originally left this issue to employer and employees to agree to in their employment agreement negotiations, on the understanding that employers would take the extra costs into account across the entirety of their work force.”

In any case, those extra costs have been little more than administrative expenses for most employers so far.

The government reimburses employer KiwiSaver contributions up to $20 a week per employee. Until April 2009, that means employers get back all their contributions to employees earning less than $104,300 a year, as well as partial reimbursement for employees earning more.

That will change as compulsory employer contributions gradually rise to 4 per cent from April 2011 on. By then, the reimbursement will fully cover contributions only to employees making $26,075 or less.

In the meantime, though, some employers are ignoring the reimbursement when paying employees. In some “particularly bad cases”, says Mallard, “the employee gets a one per cent pay cut, which the employer uses to pay their compulsory contribution, while pocketing the $20 per week tax credit the government provides them.”

Q&A column

QI 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 aggravational 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?

AIt 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.

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.

Comments Mallard: “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 forego 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”, who 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 their 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.

QAs 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 $1,043 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 $1,043 so no problem.

In the second year, they contribute 2 per cent ($1,600), 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 ($2,400) which is $1,357 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.

AHopefully 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 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 $1,043 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 under18s 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 freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s 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 [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.