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This summary focuses on the changes to the KiwiSaver scheme introduced by the 2007 budget. Roll out of the scheme on 1 July 2007 will occur as previously contemplated.
Background
Dr Cullen, via his 2007 budget, has broadened the scope, and impact, of the KiwiSaver scheme, through the introduction of the following:
- Compulsory employer contributions to KiwiSaver (or complying schemes in the case of employers opting to stay in or join KiwiSaver) from 1 April 2008, of 1% of a participating employee's gross salary, increasing to 2% from 1 April 2009, 3% from 1 April 2010, and ceasing at 4% from 1 April 2011; and
- Tax credits paid to employers through the PAYE systems up to a maximum of $20 per week per participating employee.
The government indicated employer contributions will encourage a sense of employee loyalty – which will not necessarily occur if all employers are required by law to offer the same benefit.
Employers will be entitled to comment on these latest aspects of the scheme through the Select Committee consultation process.
While KiwiSaver advocates a worthy goal – to increase the savings of all New Zealanders, there is a considerable impact on employers, which has grown in light of today's new provisions.
Likely implications for employers
- A marked increase in the percentage of employees electing to participate in the KiwiSaver scheme, to take advantage of the benefit of employer contributions;
- An increase in the overall cost of remuneration (particularly as the contribution level grows to overtake the benefit of the employer tax credit);
- Increased work for payroll staff to calculate (and keep current), the level, and cost to the business, of employer contributions;
- Increase in staff queries to Human Resources about entitlements in light of the new contribution; and
- Potential for compliance overload if employer also operates a work based superannuation scheme (even if it is a compliant scheme).
What to think about in the coming months
- Ensure employees are sufficiently well informed about KiwiSaver, and are aware of where additional information can be obtained.
- Ensure that your payroll provider/ internal payroll team are prepared, not only from 1 July 2007 but from 1 April 2008, for significant changes in the processing aspects of their role.
- Ascertain your industry norms. Will the introduction of employer contributions impact upon salary reviews in the coming years? How are your competitors dealing with the increase in compliance costs? While you need not make decisions now, forewarned is forearmed.
How can we help?
- We have a team of fully informed specialists (for employers, and for scheme providers), to respond to all queries to ensure you and your team cope with the legal changes brought about by the introduction of KiwiSaver, both from 1 July 2007, and from 1 April 2008
- We can speak directly to your HR teams and payroll departments to ensure that your staff are sufficiently well informed to deal with queries from employees.
This newsletter is produced by Simpson Grierson. It is intended to provide general information in summary form. The contents do not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters.
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