KiwiSaver

New research has revealed the prevalence of employers including KiwiSaver contributions as part of their employees’ total remuneration rather than on top of their earnings.

The Retirement Commission surveyed more than 300 small, medium, and large organisations about the use of a total remuneration approach to KiwiSaver, finding that 45% use the model for at least some employees.  

The findings show that 25% of employers include employer KiwiSaver contributions as part of total remuneration. A further 20% adopt both approaches, paying some employees earnings plus KiwiSaver, and paying others earnings inclusive of KiwiSaver.

Of the employers which use a total remuneration approach, 66% said it was because the accounting is more simple, 42% because they use contract and casual employees/it is not required, 37% said for transparency, and 21% said because it is cheaper for business. 

Those using a mixed approach gave transparency as the main reason (42%), use of casual and contract employees/not required (40%), and fairness (34%).

Of the employers paying KiwiSaver contributions on top of earnings, 55% said they didn’t know about the total remuneration model or have always used their own model, 45% say their own model is more transparent, and 18% believe ‘earnings plus KiwiSaver’ is more appealing to potential and current employees. However 40% of ‘earnings plus KiwiSaver’ users have considered using the total remuneration model with 88% of them selecting contractual or legal considerations as a reason not to.

Under the KiwiSaver Act, employers must contribute a minimum of 3% of an employee’s gross pay if the employee is a contributing member of KiwiSaver. 

Retirement Commissioner Jane Wrightson says it’s disappointing to see almost half of employers using a total remuneration for at least some of their employees. 

“This is not how KiwiSaver is designed to operate, as the legislation clearly states that compulsory contributions must be paid on top of gross salary or wages except to the extent that parties otherwise agree. However, it is not legislatively prohibited so long as the outcome is the result of good faith bargaining,” she says. 

“The prevalence of a total remuneration approach may explain why some KiwiSaver members have taken a savings suspension and not contributed to the scheme while in paid work. 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 are on top of their earnings instead of being included.” 

KiwiSaver membership is high, according to the Financial Markets Authority annual KiwiSaver report, with more than three million members (around 96% of the working age population) but ‘non-contribution’ rates are also high, with around 39% of members not currently contributing to their KiwiSaver accounts. There have been around one million non-contributors since at least 2020 before the recent cost of living crisis.

Earlier Retirement Commission research on KiwiSaver non-contributors, found not being in paid work was the main reason for non-contribution (66% of non-contributing members) because they were either studying, parenting or unemployed for some other reason. Seventeen per cent were on saving suspensions and nine per cent were self-employed. Other reasons (8%) included employer-related reasons such as the employer just recently applied for the KiwiSaver scheme, unsuccessful opt-outs, and procrastination/forgetting.

Retirement Commission senior director of policy Dr Suzy Morrissey says it is possible that use of total remuneration could be impacting the decisions of the other 33% of non-contributors but further research would be needed with employees to test whether that is the case.

Guidance to employers when KiwiSaver was introduced said, ‘employees and employers alike have a stake in lifting the saving performance of New Zealand. Increased savings helps employees enjoy a higher standard of living in retirement and also increases the supply of domestic savings that can be invested in New Zealand businesses, helping local businesses grow’. 

But the new research suggests this joint approach to retirement savings is no longer common, says Wrightson, and the removal of the incentive provided by the employer contribution on top of salary or wages goes against the ‘spirit’ of the scheme – potentially putting people off from contribution.

The full report is available here and the policy brief is available here.

A Canterbury law firm specialising in wills and estates is petitioning parliament to enable executors of wills to access funds of up to $25,000 without needing High Court paperwork.

When a person dies with $15,000 or more in their KiwiSaver fund,  executors have to apply to the High Court for probate (of a valid will) or letters of administration (if there is no will or executor) before then can uplift the funds from any financial institution.

Kiwilaw partner Cheryl Simes says the current probate/letters of administration threshold of $15,000 is too low and executors are having to pay thousands of dollars to access funds, especially from KiwiSaver accounts. She is asking for the threshold, which was set in 2009, to be adjusted for inflation to $25,000.

Simes says the threshold applies to any account held with a financial institution, but KiwiSaver tends to catch people out.

“Generally if people have any wealth they may have it in a family trust or joint account. KiwiSaver accounts are always held in a person’s individual name, and often the balance is not very much but more than $15,000.”

Simes says most lawyers charge more than $2,000 and applicants must also pay a High Court fee of $200. Unless the deceased made separate financial provision for their funeral expenses, that $15,000 includes the funeral costs, as well as any debts.

“Getting High Court approval can cost up to $6000 or more in legal fees, especially if there is no will and there are legal complications. When there is no valid will, legal complications can include your loved one’s permanent home being overseas, or next of kin not speaking English, or the surviving spouse or de facto partner needing a compulsory ‘notice of choice of option’ to choose between the law of inheritance and the law of relationship property.”

Simes says she often deals with cases involving young men who statistically are more likely to die through accident (car or work) or suicide. In one case the balance of the KiwiSaver account was $15,013.

She says she is asking for an inflation adjustment to the threshold rather than for the level to be raised as that would mean a policy change.

The Administration [Prescribed Amount] Regulations 2009 which prescribes the actual figure for the purposes of several sections of the Administration Act says financial institutions can’t release anything above the prescribed amount without probate or letter of administration.

“The law of inheritance is being reviewed and big changes are coming but in the meantime this small change could and should be made. It involves a short, simple, regulation.”

“When someone dies, their Kiwisaver should go to their loved ones, not to lawyers.”

Fisher Funds has announced it will remove performance fees across all its KiwiSaver and managed funds’ multi asset portfolios on July 1.

Fisher clients were told performance fees will go in their monthly performance update. CEO Bruce McLachlan says Fisher wants to leverage the scale it has achieved through its acquisition of Kiwi Wealth last year.

The $310 million buyout maneuvered Fisher into the number three spot of the country’s largest KiwiSaver fund providers behind ANZ and ASB. Fisher gained Kiwi Wealth’s 270,000 members, and says client numbers now stand at more than half a million and funds under management are at $22 billion.

Currently Fisher’s KiwiSaver Growth Fund has a performance-based fee based on a hurdle rate of return of OCR+5% per annum. The hurdle rate is the minimum return the fund must achieve before the client is charged a performance fee. This means clients might pay a performance fee even when the fund’s performance is below the market index.

Dropping fees is good news for clients who last month faced the unsettling news that Fisher Funds KiwiSaver was among the many local schemes which lost millions of dollars through Signature Bank Investments. This was confirmed by Fisher to be around $50 million from its select international portfolio and NZX-listed investment company Marlin Global. A Fisher Fund spokesperson said at the time that this would equate to a loss of $320 on a $50,000 balance in the KiwiSaver Growth fund.

KiwiSaver returns for the last three months are 3.1% for conservative, 5.7% for growth, and 4.7% for the balanced strategy.

KiwiSaver providers should tell clients about exposures to Silicon Valley Bank and Signature Bank and put them in context to restore confidence.

Investment advisor Chris Douglas of My Fiduciary says KiwiSaver fund managers have an obligation to provide full and frank disclosure to investors and even prospective investors.

His comments come in the wake of multiple KiwiSaver schemes losing money through investment in the failed US mid-tier banks Silicon Valley Bank and Signature Bank.

“Too often people feel that funds are opaque. That’s changed a lot over the last few years with greater transparency from regulation and quarterly reporting, but with KiwiSaver in particular, there are incentives to join; it’s government sponsored, there’s the tax credit, and so there’s a higher level of obligation from fund managers to really make sure they engage with the public and with the media, on what they're doing and why.”

Last week Newsroom reported that the Fisher Funds KiwiSaver scheme had lost $80 million through Signature Bank investments. Signature Bank was in its select international portfolio and its NZX-listed investment company Marlin Global had advised a 3.3 per cent weighting to market. Fisher said across the portfolios with exposure to Signature Bank, holdings ranged from 0.2 to 0.6 per cent. In its blog Fisher advised clients it had written the value of its Signature Bank holdings down to zero.

This week the NZ Herald revealed that ANZ saw a loss in value of $31m from exposure to SVB across KiwiSaver and non-KiwiSaver with total funds under management of $30.5 billion. ASB Bank had exposure to both US banks as of February; SVB was worth less than $2 million and Signature Bank was less than $1m across total funds under management of more than $20b. The impact on client funds was estimated at less than 0.01 per cent. Westpac’s KiwiSaver manager BTNZ had small exposure to SVB with around $100,000 in shares and $2 million in bonds. It sold the bonds for around half their original value and estimated the impact at around 0.004 per cent for growth and 0.015 per cent for conservative funds. Milford said it had a small exposure which had minimal impact on funds, and would advise clients through the usual updates. It wouldn’t put a dollar value on its investments.

Although there is no legal obligation of KiwiSaver providers to tell members if they lost money on a single investment unless it was material in the context of the investment portfolio, Douglas says right now is the time to give investors confidence that they are in a well diversified portfolio, that the US regional banks are a very small part of the wider economy, and that the regulator has stepped in to give a tremendous amount of confidence to deposit holders in all banks.

“I understand why they don't necessarily need to always be putting out notes to investors. They have to balance between scaring people and worrying about what's going on within the markets and assuring them they should be focused on the long term.

How they think about engaging with clients is really important because the reality  is they have to strike a balance. With KiwiSaver people can easily switch out and move to another KiwiSaver provider.”