It's never too late to save

For many workers, saving for retirement is a routine part of life. Some employers make it easier by providing a staff super scheme, while other people choose to manage their own investments.

In recent years the changing and younger workforce wants different benefits from employers such as transferable skills and training, rather than a super scheme. Regular job changes and career switches are now commonplace.

Retirement saving is a long-term investment - in most cases investors can't touch the money until they are 65 years old. Nonetheless, it's a benefit many employers still offer.

An employer super scheme is a tool for rewarding loyalty, but employees who are contemplating moving on to other things in years to come are less likely to sign up.

In the 1980s company schemes were the norm for large employers.

By the late 1990s, 20 per cent of employees had savings in a staff super scheme. But that had dropped to 13.6 per cent of the workforce in 2003, according to the Retirement Commission.

Employers historically offered superannuation schemes as they were part of multinational firms and it was recognised as a key part of remuneration by the parent company, particularly if retirement saving was compulsory in another country such as Australia or Britain, says Bruce Kerr, executive director of the Association of Superannuation Funds of New Zealand (ASFONZ), which represents providers of workplace schemes and industry participants.

There's also some altruism at play.

"A lot of employers also see the benefit of partnering their staff for retirement savings to assist them when it comes time to move on from the workforce," Kerr says.

Statistics from the Government Actuary measuring stand-alone schemes offered by employers suggest there is a decline in the number of firms providing such a benefit, he says.

But what is not being measured is the increasing number of firms choosing to offer a master trust arrangement managed by a financial services provider.

A master trust is an amalgamation of super schemes in one legal entity - it can be a specific financial product or a plan tailored for one organisation. It is a way for smaller employers to offer a scheme without being tied up in administration and compliance issues.

"That is a very strong growing trend," Kerr says. "There has been somewhat of a re-emergence of interest in workplace savings. One of the catalysts for that was when the Government, as an employer, re-entered the market and introduced the State Sector Retirement Savings Scheme."

Like any investment, you have to know what you are getting into with an employer super scheme.

For most workers, paying off debt first is the best financial strategy before any extra savings are contemplated because the interest to be paid on debt is likely to be more than the investment return.

Some employer super schemes are so good that staff would be silly to opt out.

"We would usually categorise those as where there is a substantial subsidy provided by the employer, dollar for dollar net," says Auckland financial planner Simon Hassan, the vice president of the Financial Planners and Insurance Advisers Association (the organisation is changing its name to the Institute of Financial Advisers this month).

"All other things being equal, these schemes are a darn good idea and would probably make it better to save in the super scheme even than paying off the mortgage," he says.

In these schemes, Hassan advises workers to add only as much cash as attracts the employer subsidy. People can then use other savings for such things as eliminating debt.

Things to investigate before signing up include vesting rights, or the rules about how quickly the employers' contribution belongs to the saver, he says.

Usually that's five years or less, but historically 10 years has been standard.

Also, some schemes are more flexible than others in what is invested in and whether the plan is portable, Hassan says. People need to understand the investment on offer.

The Retirement Commission says many company schemes offer benefits that people can't get on their own.

"Chances are, the professional fund manager will get a better return on your pooled money than you could if you invested your money separately by yourself," it says.

Fees may also be cheaper. "On your own, you could be charged as much as 1.5 per cent to 2.5 per cent of your investment a year. In a company scheme, that could be as little as 0.3 per cent a year, but typically, would be 0.5 per cent - 0.7 per cent a year," it says.

The Government also helps out with retirement savings as it has made joining a company scheme a way to reduce taxes for people earning over $60,000.

People who choose to take all of their salary as take home earnings pay 39 cents of tax on every dollar over $60,000. But if they get the employer to reduce their salary by, say, $10,000, and pay that same $10,000 directly into a registered super scheme (called a salary sacrifice), they pay only 33 cents in the dollar in withholding tax.

The gain of $600 in one year multiplies over time, especially with compound interest added.

Many women avoid employer schemes as they plan to start a family or work part-time and think they may not be eligible. It's important women check out if the company super plan can suit them, as even a short spell in a workplace scheme can be worthwhile, the Retirement Commission says. For instance, some schemes allow a break from contributing while on maternity leave. 


Changes ahead

* The Government's Kiwisaver scheme is set to change the workplace retirement savings landscape from April next year.
* The legislation is currently being considered by parliament.
* It has huge implications for employers, who will be responsible for offering the scheme to employees unless the organisation opts out.

"Employers will have more to do under Kiwisaver than the current situation and will have to choose how far they want to go in being aware of what is available and whether they want to put something into place with their firm's brand on it," says Bruce Kerr, from ASFONZ.

What to ask before joining a company super scheme

* When can I join?
* Is there a minimum contribution?
* Does my employer contribute? How much? Does it depend on how much I contribute? Can I arrange a salary split to save tax?
* Who pays the expenses of the scheme?
* Is there a vesting period?
* Do I have to pay any fees?
* Can I put my contributions on hold?
* What happens to my savings if I leave the company?
* Are my savings locked in only for retirement?
* Where is the money invested? Who makes those decisions?
* Do I get a pension or a lump sum when I retire?

Source: Retirement Commission