The Kiwisaver “employer contribution” scam

Written By: - Date published: 7:28 am, May 12th, 2011 - 23 comments
Categories: class war - Tags:

The media is reporting that the government’s cuts to Kiwisaver will be offset by an increase in the minimum contributions made by workers and employers.

Not ideal I hear you say but at least it’s evenly delivered – with both workers and employers being made to pay more.

Well not quite.

The thing is there was a loophole in the original Kiwisaver scheme that allowed employers to deduct the employer share of Kiwisaver from the worker’s pay-packet. Which means any employer that didn’t want to pay would simply push the cost onto the worker involved.

That was closed by Labour in 2008 (and they got heavily attacked for it by the Employers and Manufacturer Association). But here’s the thing. One of the first things National did when they got into power was reopen that loophole. Consequently many employers went right back to taking their contribution out of their workers’ pay.

Meaning many workers are effectively paying 4% into Kiwisaver while the boss pays nothing and that means the only incentive for being in Kiwisaver for these workers is the government contribution. Which is now being taken away.

Add to that the fact that, because of the loophole, a 1% increase in both worker and so called “employer contributions” will mean many Kiwi workers will end up with 6% of their wages being deducted into Kiwisaver instead of 4%. On top of losing the government contribution.

While most employers will pay nothing more. No wonder Business New Zealand and the Employer and Manufacturers Association are welcoming the move.

23 comments on “The Kiwisaver “employer contribution” scam”

  1. MrSmith 1

    National’s plan from the start, don’t scare the horses, just give them a little Less food every day, that way they won’t notice until it’s to late.
    And wait for it, they will then claim they got rid of the obesity epidemic as well.

    • Sam 1.1

      Phil Goff, although decrying the changes to kiwisaver, is also reported to have said that Labour will not reverse them.
      Shades of “Axe the tax”?

      • Lanthanide 1.1.1

        No, he hasn’t said that “Labour will not reverse them”, he’s said that Labour would be reviewing Kiwisaver as well and potentially make changes to it. David Cunliffe indicated that changes would make it more attractive to save – not less. But that doesn’t mean they wouldn’t also reduce or scrap the government tax credit.

  2. Lanthanide 2

    I’m still expecting National to come out with something ‘unexpected’ with the kiwisaver changes. One thing that is quite possible is they nix the government ‘tax credits’ entirely, and replace it with tax-free employee contributions.
    You would still pay 2% or whatever of your income into kiwisaver, but it would be tax free. Essentially this means instead of paying tax on your full amount of income and losing 2% of take-home pay, the 2% would come off the top and you’d only pay tax on 98% of your income. This would work out to being an in-the-pocket tax-cut to anyone currently contributing to kiwisaver. It would also benefit the wealthy the most. At 4% contribution level, anyone earning over $78k would get a bigger benefit than the current $1040 tax credit. It’s a little tricky to work it out for incomes under $70k due to the tax rate changes, but it looks like you’d need to earn at least $50k year to get a greater benefit even contributing at the 8% rate. Of course they could always cap the maximum deduction at a certain figure.

    • It would also further reduce the tax take thus offsetting part of the ‘saving’ from eliminating the tax credit. That would be another step in the structural changes they want to make to the economy overall – under the guise of a bit of minor, crisis driven, ‘tinkering’ with something they are supposedly leaving substantially ‘in tact’ (or that’s the line that could be run).

      That is, the wealthier would pay less tax and the rest would have to pay more for the things required to function in this society. I suppose the idea is that this would create ‘incentives’ for those individuals not ‘performing’ in the economy (i.e., those individuals who only work long hours at poorly paid jobs in bleak and heartless physical environments that incrementally undermine their health and probably therefore won’t need much in the way of ‘savings’ for retirement as they’ll die earlier.).

      Reminds me of an old New Yorker cartoon. Two old guys are sitting in leather chairs in a “gentleman’s club”. One is reading the paper and says to the other: “I see the rich are getting richer; but, then again, the poor are getting poorer so it all balances out in the end.”

    • PeteG 2.2

      One thing that is quite possible is they nix the government ‘tax credits’ entirely, and replace it with tax-free employee contributions.

      Interesting idea and it does simplify things, taking less rather than taking and giving back at the end of the year. You would gain slightly due to getting more into your KiwiSaver account sooner rather than once a year.

      Or – they could be fairer to low earners who can’t afford to be in KiwiSaver – and introduce a no tax scale or lower the rate on the lowest scale to compensate for an equivalent of maybe half of the MTC – but those not in KiwiSaver get some benefit which they miss out on now.

      Getting TIAT is pointless now until we know what the whole KiwiSaver/WFF/tax package is in the budget – they must be laughing at all the handwringing.

      • Lanthanide 2.2.1

        Apparently you don’t understand how kiwisaver works.
        Say you earn $100,000 a year, and are on the 4% contribution rate. $4,000 will be put into kiwisaver every year, directly from your salary. With current tax rates, your tax liability (including ACC) is $26,164.37, so your after-tax salary is $73,835.63. Because kiwisaver employee contributions are currently taxed, that $4,000 comes off the final figure, giving you $69,835.63 take-home pay, or $5819.64 per month.
        If you implemented my suggestion of tax-free kiwisaver contributions, the $4,000 comes off at the very start, so your total taxable income is instead $96,000. Your monthly after-tax & after-kiwi saver income is then $5,929.64, or an increase of $110 extra take-home per month – which is 33% of $4,000 / 12.
        In both cases, you are contributing to $4,000 to kiwisaver per year, and the timing of the payments has not changed at all. What has changed is that instead of getting $1042.86 in tax credits put into your kiwisaver account at the end of the kiwisaver year (30th June), you get tax cuts in your pocket monthly – $110/month or $1320 total in my example. This is more than the current tax credits are worth, so as I’ve illustrated, this would be a tax cut for the rich – and therefore exactly the sort of thing National are likely to do.

        • Herodotus

          My metals man- to do as you say for me you have to make it compo, otherwise yet again (and I keep on saying it) those who dont cont then subsidies those who do i.e. the poor subsidies the rich. But Ihear you say thatthe poor canot afford to contribute (Which is very fair reply) then review and increase those on lower wages and up the benefit in theory by 4% and contribute that to the fund. Otherwise I am in support. But when most are struggling to cope day to day how can they contemplate retirement.
          Also as under current law you are unable to “gross up” your pay packet to compensate for opting out. So those aged over 65 and still actively working are being paid as a grossed up salary an inferrior amount than those under 65.

    • Peter 2.3

      I’m guessing that they will announce positive savings moves that reduce the tax you pay on money saved with the trading banks. This will be in response to banks saying it is not fair that Kiwisaver is far more attractive to the average punter than tradition saving with a trading bank.

      So National will claim that they are giving people an incentive to save even though it will far less attractive than Kiwisaver.

      • Lanthanide 2.3.1

        As outlined in the post the other day, I think that’s a bit too blatant of a tax-cut for the rich.

  3. Pascal's bookie 3

    Seeing it’s so stupid to borrow money to deposit into citizen’s savings accounts, I’m guessing there won’t be any national party mps taking advantage of the deal where for every dollar they put into their super scheme, the taxpayer puts in $2.50.

    As a matter of principle I’m guessing that they are all just using plain old vanilla kiwisaver like us plebs get right? Surely they aren’t getting the taxpayer to borrow money to put into their accounts, right?

  4. Kiwisaver restructuring looks like a wage freeze in disguise.

  5. Kaplan 5

    John key has hated this scheme since day one.
    Don’t let them cut Kiwisaver

  6. randal 6

    everything in NZ is done on the cheap.
    I guess we are just cheap people.

    • MrSmith 6.1


    • Draco T Bastard 6.2

      Yep. Very cheap and we don’t like paying the full cost for anything. And that’s the objective cost which cannot be cut not the subjective price which can. Builders in Auckland ATM can work 40+ hours per week and not have enough to live on. Amazingly enough, no one in Chch is making any better offers. In fact, Fletchers capped the hourly rate.

  7. Sam 7

    Im gonna be the devils advocate here and ask why should the government be getting involved in peoples’ savings anyway?

    • Lanthanide 7.1

      Because the people have clearly shown they’re incapable of saving their money responsibly. Not just people in NZ either, but most (all?) developed countries have some sort of public pension savings scheme, many of them compulsory (like Australia).

      The national debt of New Zealand is at somewhat dangerously high level also, but 90% of that is a private debt problem. So it makes sense for the government to target private savings in order to improve the country’s balance sheet. The problem is doing this without also making the public debt worse.

    • Tanz 7.2

      Because generally, people in NZ have a poor savings record (and I’m one of the not-outstanding savers), and a worse one for retirement. Also, there are few spare dollars to be put aside and not touched. That’s one of the great things about Kiwisaver – it cannot be accessed, except for a first home, or for serious illness etc. It is locked away until the person reaches the age of sixty five. That money will be invested, reinvested and will grow fast, compound interest, high returns. Hope so, anyway, that’s my understanding of it.

  8. joe90 8

    How long before something like this is suggested.

    The various tax reduction and additional expenditure measures which I am announcing today will be funded by way of a temporary levy on funded pension schemes and personal pension plans. I propose that the levy will apply at a rate of 0.6% to the capital value of assets under management in pension funds established in the State.

  9. Tom Gould 9

    And where are the lazy, brain dead, indolent, craven, media on this Tory scam? Asleep at the wheel as usual. Or more likely having a drink and a laugh with their big buddy John?

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