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The need exists, as two-thirds of those surveyed in 2021 said they had no savings, and 81% said they could not cover unexpected expenses equivalent to one month’s income.
But does KiwiSaver really live up to the hype? According to a report released this month by the Superannuation Commission, which combines data and research from IRD, the FMA and Te Ara Ahunga Ora, the scheme is close, but not quite there.
KiwiSaver members make up 80 per cent of the paid working population. In contrast, most non-contributors have low or no income, with one in three KiwiSaver members earning less than $20,000.
In other words, the program is ineffective when it comes to considering those outside of (or disadvantaged by) the traditional workforce.
Equity issues
Whether women are working in female-dominated industries or earning less than men for the same job, we know women (especially non-white women) pay a huge price in the labour market. It’s no surprise that this extends to KiwiSaver contributions.
The Superannuation Commission report shows women and men put the same proportion of their wages into KiwiSaver on average, but men put an average of 36 per cent more into their KiwiSaver accounts each year than women.
The report also highlights that when factors such as industry and income are controlled, women tend to have higher contribution rates. This means that women contribute more to the scheme but the workforce is failing them.
Worse still, employers can choose whether to contribute to parental leave, so if parents choose to suspend contributions, women – and frankly, we are not there yet – will face a greater disadvantage.
The same applies to self-employed people, unpaid workers, children, or people receiving ACC, welfare or paid parental leave (which is not subject to compulsory deductions).
Age Discrimination
For those who work, they may wonder why employer contributions are compulsory starting at age 18 and ending at age 65. Of course, employer superannuation tax is deducted from employer contributions to employees’ KiwiSaver, so it makes sense to consider whether employers should be shouldering the cost.
But shouldn’t employees be penalized or discriminated against because of their age?
The situation is even worse for children under 18 who are unable to access the benefits of Gold membership. While there is no age limit on the KiwiSaver scheme itself, children under 16 need the consent of all guardians.
Unless you and your ex are on good terms, your children will not automatically be enrolled in school until they are 18. In 2021, a petition questioned the outdated “nuclear family unit” model, with the Parliamentary Petitions Committee calling on the government to amend the Act accordingly. To date, the system has not changed.
details make a difference
Even workers of a certain age were severely penalised, with more than half of New Zealand employers taking a “total remuneration approach”, the report said.
Specifically, this refers to situations where the employer passes on mandatory contributions to the employee through a contract.
For example, let’s say you get a job that pays $100,000 a year. Your contract may have a clause that “includes” employer contributions. Add in your 3% contribution and you’ve inadvertently paid into your retirement twice, leaving you with a pre-tax salary of $94,000.
Sneaky? Yes, because the KiwiSaver Act makes it clear that compulsory contributions must be paid in addition to gross wages or salary unless the parties agree otherwise. The Act further explains that a duty of good faith applies when parties to an employment relationship negotiate the terms and conditions of compulsory contributions.
While the Employment Relationship (Protection of KiwiSaver Members) Amendment Bill introduced last year was intended to address the issue, it has not had much success. In 2007, Labour banned total remuneration clauses, and National reintroduced them in 2008.
Unlike in other jurisdictions, employees often contribute more to the scheme than employers and the government combined. A third of employees contribute more than the minimum 3% contribution rate, while less than a tenth of employers contribute more than the mandatory 3% contribution rate.
The Treasury doesn’t make a big fuss about the importance of valuing people over profits, but it put it best in its 2007 guidance to employers.
“Employees and employers have a responsibility to improve New Zealand’s savings performance. Increased savings helps employees enjoy a higher standard of living in retirement, while it also increases the supply of domestic savings that can be invested in New Zealand businesses, helping local businesses grow.”
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