New research reveals prevalence of employers not paying KiwiSaver on top of earnings

New research has revealed the prevalence of employers including KiwiSaver contributions as part of employees’ total remuneration rather than on top of their earnings.   

Te Ara Ahunga Ora Retirement Commission surveyed more than 300 small, medium, and large organisations throughout Aotearoa New Zealand about the use of a total remuneration approach to KiwiSaver, finding that 45% use the model for at least some employees.   

The findings showed that 25% of employers always include employer KiwiSaver contributions as part of total remuneration. A further 20% of employers adopt both approaches, paying some employees earnings plus KiwiSaver, and paying other employees earnings that include KiwiSaver. 

Sixty per cent of respondents cited the reason they use a total remuneration approach was because it was simpler from an accounting perspective and 21% admit it’s cheaper for their business.  

Under the KiwiSaver Act, New Zealand employers are required to contribute a minimum of 3% of an employee’s gross pay if the employee is a contributing member of KiwiSaver.  

Retirement Commissioner Jane Wrightson says it’s disappointing to see almost half of employers using a total remuneration for at least some of their employees.  

“This is not how KiwiSaver is designed to operate, as the legislation clearly states that compulsory contributions must be paid on top of gross salary or wages except to extent that parties otherwise agree. However, it is not legislatively prohibited so long as the outcome is the result of good faith bargaining,” she says.  

The prevalence of a total remuneration approach may explain why some KiwiSaver members have taken a savings suspension and not contributing to the scheme while in paid work. It could also be possible that some employees may not even be aware that this approach is being used, and assume that the employer contributions is on top of their earnings instead of being included.”  

KiwiSaver membership is high, with more than three million members, representing around 96% of the working age population of New Zealand. However, ‘non-contribution’ rates are also high, with around 39% of members not currently contributing to their KiwiSaver accounts.  

Earlier research (from Te Ara Ahunga Ora) highlighted the main reasons for not contributing to KiwiSaver are because they are generally not in paid work. Sixty-six per cent of non-contributing KiwiSaver members were experiencing periods of reduced labour market participation because they are studying, full-time parenting, or unemployed. The reasons for the other 34% to be non-contributing remain unexplained.  

In guidance provided to employers when KiwiSaver was introduced, they were advised that ‘employees and employers alike have a stake in lifting the saving performance of New Zealand. Increased savings helps employees enjoy a higher standard of living in retirement and also increases the supply of domestic savings that can be invested in New Zealand businesses, helping local businesses grow’.  

This research would suggest that this joint approach to retirement savings is no longer common and the removal of the incentive that is the employer contribution on top of salary or wages goes against the ‘spirit’ of the scheme – potentially putting people off from contributing,” says the Retirement Commissioner.  

The full report is available here and policy brief is available here. 


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