About 25% of employers use a total remuneration approach, in which the KiwiSaver employer contribution is paid as part of the package, not on top of it. Photo / 123rf
Q: Something that’s been a bugbear of mine is that ANZ, as the largest KiwiSaver provider and one of the largest employers in the country, does not offer KiwiSaver employer contributions for a large number of its employees, specifically those on a “total employment cost” or “managerial” contract.
The stated rationale is that they effectively gross up these salaries to include KiwiSaver contributions, and employees are free to decide whether to participate. In practice, this isn’t true, and my personal experience, as an employee, is that, in hiring staff, they have matched the net (or pre-KiwiSaver contribution) salaries. Even if this is within the law (which of course it is), I struggle with the ethical rationale and believe that, as a leading employer and KiwiSaver provider, it should be promoting saving for retirement and financial wellbeing.
What are your views on ANZ’s position and the total employment contract approach?
A: I don’t like it. It removes a strong incentive to participate in KiwiSaver.
This practice is sometimes known as total remuneration. The employer effectively takes its KiwiSaver contribution out of an employee’s pay.
ANZ explains that its salaries and benefits policy “was introduced at ANZ over 20 years ago, following the acquisition of The National Bank of New Zealand by ANZ. It was designed to provide a fair and consistent way of packaging pay and allow for consistent treatment across six retirement savings schemes with varying rates and calculation methods.
“Over time, many of those schemes have closed, and 92% of ANZ’s staff are currently contributing to KiwiSaver. Employees who do not contribute to KiwiSaver often choose to invest in other funds, such as ANZ Investment Funds.”
I can see how this policy evolved. But it could be changed.
A common explanation from total remuneration employers is that they want to treat all employees the same, regardless of whether they are contributing to KiwiSaver. Some employers add that they have foreign employees not eligible for KiwiSaver.
ANZ says, “The employer contribution was designed to encourage more people to join and regularly contribute to KiwiSaver, not to make KiwiSaver members better off than people who choose to save for retirement in other ways.”
I disagree. I think the Government’s plan was always that employer contributions would be an extra for employees. And I’m in good company. A Retirement Commission report says total remuneration “goes against the ‘spirit’ of the scheme”, and it “is not how KiwiSaver is intended to operate, as the legislation clearly states that compulsory contributions must be paid on top of gross salary or wages, except to the extent the parties otherwise agree”.
That last bit about the parties agreeing is controversial. In some workplaces, highly paid employees negotiate with their employers to receive other benefits instead of employer KiwiSaver contributions. That’s fine.
But some employers who use total remuneration have said all their employees negotiate when they join the company. I doubt that many rank-and-file employees, when being offered a job, feel in a position to bargain in this way.
Years ago, I ran a seminar about KiwiSaver for employees of a total remuneration company, and they clearly didn’t understand the situation. They just thought their boss was being mean compared with their family members’ bosses.
ANZ is not unusual in using total remuneration. Retirement Commission research found 25% of employers – of all sizes - use it for all their employees, and another 20% use it for some employees.
And despite ANZ’s high rate of KiwiSaver contributions from its employees, the commission says that, in general, “the removal of the incentive that is the employer contribution on top of salary or wages could be one explanation for periods of non-contribution (savings suspensions) by those in paid work”.
ANZ adds, “As the Government introduces new default KiwiSaver employer contribution rates, ANZ is carefully reviewing how best to apply these changes.”
I hope that, in the process, it drops total remuneration.
What happens to employees of the other largest KiwiSaver providers? ASB, Generate, Milford and Westpac all report that they don’t use total remuneration.
ASB adds, “We have also rolled out a benefit for permanent employees where we will continue to make employer contributions to KiwiSaver if our people have made a temporary pause in their own contributions.”
Good stuff.
Says Fisher Funds: “The terms of employment for our people are confidential and aren’t something we discuss publicly.”
Who knows what that means?
It would be interesting to hear from employees of any other KiwiSaver provider that uses total remuneration.
Q: I am 82, my wife 79. We own our house, which we have been in for 55 years. My wife has been very unwell for nearly three years, in and out of hospital (I estimate the total cost to the health service of about $160,000).
During this time, I have been nursing her at home as well. My problem is that, since I have been looking after her, I have not been able to do the maintenance and care for the outside of the house (needs painting and grounds tidying up).
You have written a lot about reverse mortgages, and I am wondering if they would be of use to us.
The rateable value of the house is $1 million, and I would need to borrow about $80,000. We have about $80,000 in the bank, but my wife is worried about having enough to pay for her funeral.
I know it is expensive as I have just paid for my aunt’s, although I may get some back when the lawyers have finished.
Over the last two years, we have also paid $24,000 for four cataracts to be done, $6000 for hearing aids, plus other old people’s assistance equipment.
The use of the money would be: one, paint the house; two, get someone to do the gardens; three, I need to change my car for a more modern one (not new); four, a few replacements inside the house (carpet etc).
With all the stress I have had over the last few years, I would like to sort these few things to take the worry off my mind. I am realistic enough to know that I am on borrowed time, and it would be nice to relax about these things. I am finding it hard to be decisive, so I seek your thoughts.
Don’t worry, I will be making the final decision.
Don’t grow old, Mary!
A: Trying not to! Still, as actor Maurice Chevalier said, “Old age is better than the alternative.”
You’re going through tough times. But I think you and your wife are perfect candidates for a reverse mortgage, or perhaps a similar scheme, Lifetime’s home reversion. It doesn’t really make sense for you to be struggling when you’re sitting on a million-dollar asset.
As you say, I’ve written plenty on this topic this year. So I won’t describe these products in detail here, but just say they are ways to make use of some of the money you have tied up in your home, while still living there. When you eventually move out, you don’t get to keep all the proceeds from the sale. But you and your wife, like many others, can make better use of the money now than later.
Let’s just look at how my four “rules” about reverse mortgages seem to apply to you two:
You can find more info in past columns or on the equityrelease.co.nz website run by economist Cameron Bagrie. You might want to use Bagrie’s service, which helps you to assess which product is best for you.
I also recommend trying different scenarios on the reverse mortgage calculator on Heartland Bank’s website.
Q: I am based in Sydney and read your column every week. I just wanted to make a point about the health insurance question you had recently. I was in a similar situation a few months ago.
My family had been getting heavily subsidised, gold-level health insurance in Australia for the last 10 years, due to having the policy through my husband’s work. We were paying about $200 a month for our family of four. When he left the job, we had the option to continue it.
The health insurance company quoted us about $630 a month. Bear in mind that insurance over here is different: it also covers things like physio, massage and dental care. And it has tax implications if you don’t have it.
Because this policy was “so good” and we couldn’t get anything close to it elsewhere, I agreed and we now pay $630 a month. A few months after that, I bumped into a work colleague of my husband’s, who had left at the same time.
He immediately asked if we’d kept the insurance. He had also kept it, for the same reasons. He then asked how much we got it for. He had got the exact same policy for $300 less a month. And he had an extra child. He said, ‘Everything is negotiable!’ So, you might want to let your readers know, they should try and negotiate. Just like a power company, the insurance company will want to keep you, and may offer a cheaper price to do it.
A: It’s great to know this column reaches across the Tasman. But financial products are, of course, often quite different in Australia. Still, I asked Southern Cross whether there’s any flexibility in pricing their policies.
“To ensure consistency and fairness, Southern Cross Health Society provides standardised premiums across our membership,” says chief sales and marketing officer Regan Savage. “Any difference in pricing is related to the member’s (or applicant’s) choice of product, their age and biological gender, as well as their smoking status.
“Premiums can be amended, though, based on factors such as our free child discount (for the third and subsequent child on qualifying policies), low claims reward, healthy lifestyle reward or adding an excess.”
He adds, “Some markets adjust premiums based on the insured person’s relative risk rating. For example, premiums may have been set based on the customer’s historical claims performance and lifestyle factors. Most commonly, though, premiums vary because of the level of excess a person chooses.”
Clearly, there are several possible reasons why your husband’s former colleague paid less.
Q: Your column recently looked at the dollars and cents of health insurance, but there is more to it. After paying Southern Cross for many years with few claims, it now takes a big chunk of my pension. Is that good value? Hell yes! In the last couple of years, cataracts and new hips have repaid about 10 years’ contributions, and I’m enjoying an active life. The main advantages are being able to choose a good surgeon, and at the consultation being asked when I would like the operation, then getting treated like a paying customer in a private hospital. Compare that with people spending several years on waiting lists for our over-stretched public hospitals, often in pain or with limited mobility. How do we put a cost on the increased quality of life for our “golden years”?
A: How indeed? Another reader tells a similar story.
“Many times I have considered stopping my plan, and my partner always advised against it,” she says. Recently, she found she needed surgery and was shocked at the $31,000 total cost. “I would strongly advise your writer not to cancel her membership.”
More on this topic next week.
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.