We have approximately a third of our staff on Kiwisaver, ranging from graduates to some of our senior leadership team. The majority of new joiners to Intergen are not opting out and we have a slow trickle of current employees wanting to sign up. Most are taking just the 4% deduction but we do have one hardy soul who is contributing 8%.
Our employer experience has been mixed. Calculating the deduction is straightforward for the majority of our staff on a salary but we do have some staff who have variable incomes. This did require a manual calculation but we have just changed payroll packages (to ERMLive, based on Microsoft CRM) and now Kiwisaver is calculated automatically on all qualifying payments. However, for the small employer who does the payroll in-house and has variable payments to employees, there is an additional overhead.
The 1% employer contribution started on April 1st and to help offset this there is an employer tax credit. The tax credit offsets about 90% of Intergen’s employer contribution, so already the employer contributions are costing us. This will only increase as the employer contribution increases to 4% over the next three and a half years. The tax credit is calculated so that an employee on a salary of $35,000 or less who is in Kiwisaver is cost neutral to the employer. Intergen employs bright, professional staff who earn a higher than average salary so the employer contribution is a direct cost for us. Coupled with the paradox of a tight labour market pushing up salaries and an ultra competitive environment that forces prices to clients down, Kiwisaver is just another hit to the bottom line.
So how could the Kiwisaver scheme have been better? I have a few views on this that I would like to share.
If it were to remain voluntary, there should be tax incentives to participate. Sure, you get the $1,000 joining fee up front but ongoing contributions are calculated from gross income but paid from after tax pay. This seems to me to be a disincentive. In the UK your tax rate is adjusted according to the amount of qualifying pension payments that you make. This is a simple mechanism, adjusted annually, that incentivises employees to contribute to their retirement.
The second option, and my preferred one, is to make it compulsory. The 1975 election won by Rob Muldoon’s National party saw the doom of compulsory national super. Perhaps, with hindsight, more assets would be New Zealand owned if we still had a super fund industry flush with 30 years of compulsory contributions.
In Australia 10% of an employee’s salary is taken to the super fund. The employee does not even see it. I believe this is what we should also be doing here. Employees then focus on the value of their remuneration package, not their take-home pay. If it is introduced over five years, 2% a year, and coupled with some basic changes in tax policy, I think it would be a very good scheme.
The tax changes would be simple – drop GST from food and kids clothing, like they have in the UK, have the first $15,000 of income tax free (again another UK tax policy) and raise the tax bands so that the highest rate does not start until, say, $120,000.
These changes would make losing 10% of your salary over the next five years manageable and, although I am no economist, having a massive managed funds industry pumping money into the economy would more than mitigate the loss of GST and income tax revenue for the government.
All types of saving for retirement is a good idea and the sooner the better, so Kiwisaver should be lauded. But with a little more thought from Dr Cullen’s advisors we could have had a scheme that would benefit all New Zealanders for generations to come.
The views expressed above are the author’s and do not represent those of Intergen.