Commissioner says practice goes against the 'spirit' of the scheme
A new report has found that 45% of employers in New Zealand are not paying their employees' KiwiSaver contributions on top of their earnings.
Instead, these employers are including their employees' contributions as part of their total remuneration.
The voluntary savings scheme seeks to help individuals save for their retirement, and according to the KiwiSaver Act, employers are required to contribute a minimum of three per cent of an employee's gross pay if the employee is a contributing member of KiwiSaver.
Compulsory contributions must be paid on top of gross salary or wages unless both the employer and employee otherwise agree, according to Retirement Commissioner Jane Wrightson, citing the legislation.
"However, it is not legislatively prohibited so long as the outcome is the result of good faith bargaining," Wrightson said in a statement.
Total remuneration approach
The commission's findings revealed that 55% of 306 surveyed employers are paying contributions on top of their employees' earnings.
However, another 25% of employers always include KiwiSaver contributions as part of total renumeration, while 20% do this for some employees.
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According to the report, 60% of employers adopt this total remuneration approach because of its simplicity. Another 21% said because it was "cheaper."
"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," Wrightson said.
The prevalence of a total remuneration approach may also explain why some KiwiSaver members have suspended saving and are not contributing to the scheme despite being employed, according to the commissioner.
"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," Wrightson said.
There are more than three million members of KiwiSaver, according to the commission, but around 39% are not currently contributing to their KiwiSaver accounts.