Does your employer pay for your retirement?

David Boyle is head of sales and marketing at Mint Asset Management.

OPINION: I started working at the Postal Savings Bank in 1982, to the great relief of my parents. It would be fair to say that academically, I was not the strongest student and did a much wider range of activities than those at the academic level, so good solid work was welcome.

Back then, if you got a job in the civil service, it was a job for life. I mean, the political party in charge might change, but the government would never fall and the thought of performance reviews, KPIs, bell curves and the like was as foreign as the idea of ​​working from home.

As long as you showed up, did your job, and put in your seven and a half hours a day, including your 15-minute morning and afternoon tea breaks, life was sweet.

The great thing about joining government service back then was that you were automatically enrolled in Government Super. In fact, it was mandatory.

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This meant that of my $6,995 in annual earnings, I had to pay 2.5% into the plan and the government would pay 7.5%.

Someone must have read the book The Richest Man in Babylon where among a number of smart money habits the key message was to pay yourself first and about 10% of your income would put you in a very good position when you retire. The program was excellent because it would provide an annuity. In other words, instead of getting a lump sum, they would pay you a percentage of your income, what you earned, until the day you died. In fact, in many cases, even after your death, your spouse would still receive half.

This is what got me wondering why so many people don’t contribute to their KiwiSaver.

Missing KiwiSaver Contributions?


Missing KiwiSaver Contributions?

The FMA recently released its annual review of KiwiSaver, highlighting a number of statistics and activities that shaped the KiwiSaver year to March 2022. With all the noise around changing default providers and the lower fees (which is great for default KiwiSaver members), one of the biggest burning issues that has yet to be resolved is the number of KiwiSaver members not contributing to their savings

This is a significant issue because no matter how low your fees and how good the returns are, if you don’t have a savings balance and don’t contribute regularly, they can’t work their magic. . Let’s not forget that the eighth wonder of the world is compound interest, which helps you grow your savings for your retirement years.

I’ve been wondering for some time if part of the problem could be employers not meeting their KiwiSaver obligations? How are New Zealanders employed these days, allowing employers to circumvent their moral and legal obligations?

Let’s take a look at the key statistics from this year’s report.

At the end of March 2022, there were:

  • 3,168,641 members

  • With a total of $89.7 billion saved

  • With an average balance of $28,324.00

  • $5.1 billion was paid through wages and salaries

  • $2.7 billion came from employers

Unless you have agreed with your employer that your wage or salary includes the employer’s contribution to your KiwiSaver, then it is required to match your 3% contribution. No ifs or buts.

OK, just a few more numbers to give you an idea.

At the end of March, 1,230,408 members did not contribute a single penny to their KiwiSaver program. Of these, 237,764 are under 18 and 101,007 members were on dues suspension, but that still leaves just under a million members with a big question mark.

At worst, you would hope they could contribute $1043 per year to get their free government contribution of $521.00. In other words, that’s a total of just over $1.9 billion in lost savings for the year.

However, my real concern is how many of those just under a million non-contributors are employed part-time or full-time. Obviously, some will be at university or other polytechnic or government-funded learning centers. At the end of 2021, that number was around 358,000 (according to the Education Counts website). Some of these people, I’m sure, work part-time to pay for their tuition. There are therefore approximately 654,000 unemployed, self-employed or employees who do not receive their employer contributions.

Are you one of those missing? I hope not. You may have chosen to sign an employee contract stipulating that your income includes your employer’s contribution. In other words, you choose to deduct both employer and employee contributions from your salary, rather than employer contributions on top of your salary.

For example, for a person with an average annual income of $50,000 and paying 3% contributions, if your employer pays them in addition to your salary, your gross income is $51,500, if your employer contributions are deducted from your salary, your gross income is $50,000. So you can see that it makes a big difference.

David Boyle is Head of Sales and Marketing at Mint Asset Management Limited.


David Boyle is Head of Sales and Marketing at Mint Asset Management Limited.

In some cases, this may be acceptable – if you’ve negotiated a higher salary so you can choose what to do with it. If you go on suspension of contributions, you still receive both contributions in your pocket.

If you’re self-employed, at a minimum, you’ll probably want to take advantage of the 50% return you receive on your contributions of up to $1,043 per year using the government tax credit of $521. But maybe for some, the value of doing it just isn’t worth it.

This still leaves a very large number of Kiwis who are not contributing, who are employed full-time or part-time, who are in KiwiSaver. The only other possibilities are that the employers, for one reason or another, do not pay these contributions. I think the answer lies in how New Zealanders are employed. By this I mean personnel may have been moved from salaries or wages to contracts. Or more staff can now be on short-term or long-term contracts instead of traditional wages or salaries. This means that employers do not have to pay contributions for these employees, nor for employees who have chosen not to contribute to the KiwiSaver.

The government is currently reviewing KiwiSaver and I hope as part of this review that a little more light can be shed on this topic to see what can be done to close the gap.

A simple change could be to revise the wording of the legislation by deleting “salary and wages” and replacing it with “paid employment”. This would mean that the wonderful process that is automated to collect small contributions from employees and employers, whatever agreement you have in place, is applied.

I believe that small changes like this over time will have a positive outcome for all and allow the intent of the KiwiSaver Act to reach a much wider group of Kiwis, so that they can fly during their years. retirement rather than being stuck on the ground looking back and wondering what if?

Disclaimer: David Boyle is Head of Sales and Marketing at Mint Asset Management Limited. The above article is intended to provide information and does not purport to give investment advice. Mint Asset Management is the issuer of the Mint Asset Management funds. Download a copy of the Product Disclosure Statement here.