Monday, March 06, 2006

Mark Todd: KiwiSaver a super tool

There was a time, not so long ago, when a great many employers were prepared to help their employees save for retirement. Staff super schemes were a major part of the employment landscape.

In part, this reflected the nature of working patterns. Employers took an almost paternalistic approach and employees often rewarded them with lifelong loyalty.

These super schemes were highly valued. Small sums set aside over 30 or 40 years grew into wonderful retirement nest eggs. This was a source of satisfaction for employer and employee.

Almost everyone accepts that saving through a deduction from salary has significant benefits. It is relatively painless because there is no opportunity to spend the money.

But the number of employers with staff superannuation schemes has dropped over recent years. Many have been wound up or the schemes are now closed to new employees.

There are a number of reasons why employers have been reluctant to provide superannuation:

* Changing work patterns mean that employees are less likely to remain with a single employer until retirement;

* The cost and time associated with operating an employer superannuation scheme; and

* The legal liability associated with these schemes.

Now we have KiwiSaver, the Government-designed plan to reverse the decline and reinvigorate our individual and collective savings while we work and earn. The KiwiSaver legislation released last week is aimed at getting us back on the road to the good old days by providing a simple vehicle through which employers can assist employees to save.

KiwiSaver aims to tackle employer reluctance in a number of ways:

* KiwiSaver arrangements will travel with an employee from one employer to another, accommodating today's work patterns.

* It is designed to impose only a minimal administrative burden and cost on employers. KiwiSaver schemes will generally be operated by third-party financial institutions and the Inland Revenue will provide a clearing house for contributions. There is no compulsory employer contribution required.

* Employers will be able to be part of basic KiwiSaver arrangements without Securities Act liability or liability under laws relating to financial advisers.

Employers will also be able to choose their level of involvement, depending on their particular philosophies and business requirements. Possible options are:

* The minimalistic approach - just complying with the basic requirements of the KiwiSaver legislation. This would require an employer to provide the Inland Revenue with new employee details, pass an information package to new employees and deduct KiwiSaver contributions for employees who do not opt out.

* A medium level of involvement - activities over and above the minimum required by the legislation. For example, employers might promote the benefits of retirement savings in general to their employees or facilitate arrangements under which those employees are able to obtain advice on financial planning. There is also scope for an employer to select a KiwiSaver scheme that will apply to its employees if the employees do not have their own preference.

* The more traditional model of superannuation - the employer making additional contributions for the benefit of employees, a potential recruitment and retention tool.

The draft legislation also contains provisions designed to limit disruption to existing employer schemes. If relevant criteria are met, employers will be able to convert their existing schemes to KiwiSaver schemes or obtain an exemption from the requirement to enrol employees in KiwiSaver.

These provisions are critical to ensuring KiwiSaver is not counterproductive through being the final nail in the coffin for existing schemes.

It is early days for KiwiSaver and a vast array of legal and business issues need to be addressed before its anticipated April 1, 2007 implementation date.

However, my view is that KiwiSaver should be welcomed as an additional tool for employers to assist staff and enhance relationships.

* Mark Todd is a partner with law firm Bell Gully. He is a corporate and commercial lawyer who has been involved in superannuation law for over a decade and has a practice advising on superannuation and investment products.


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