The great KiwiSaver loophole that allows employers to dupe staff

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Consumer NZ is calling for an unfair KiwiSaver loophole to be closed so that employers are required to make their KiwiSaver contributions on top of an employee’s pay package, rather than taking it out of the employee’s back pocket.

“KiwiSaver is meant to help people save,” said Consumer NZ lead investigative writer Dr Cherie Lacey.

“With sky-high prices for essentials such as food, petrol and energy, every cent of a pay cheque counts for many New Zealanders. Allowing this loophole to continue means employees are left short-changed.”

Under current laws, if an employer includes a “total remuneration” clause in an employment agreement, this allows them to deduct their KiwiSaver contributions from the employee’s pay. 

For example, if an employee’s total annual remuneration is $56,000 (around the national median income) and they have opted in to KiwiSaver, a total remuneration clause will allow the employer to deduct the minimum employer contribution of 3 percent from the employee’s salary. This means their actual annual salary is $1680 lower than they may have expected, at $54,320. 

A total remuneration clause effectively makes an employee pay for their own KiwiSaver contribution twice. 

This happened to Oliver*. Two weeks after starting at a new job, he was told he was getting a raise. Without a pay rise, he would be earning below minimum wage, so his employer needed to bump up his pay. Oliver initially thought the pay rise was a good thing, but soon realised he wasn’t going to be any better off because his employer’s KiwiSaver contribution was part of his “total remuneration” package. 

Oliver thinks it’s unfair that his employer can deduct his KiwiSaver from his pay. 

“The purpose of KiwiSaver is to encourage saving for retirement, and that is what the employer’s 3 percent contribution is meant to do,” said Oliver. “Making it a part of the total package actively discourages joining KiwiSaver as it puts you on a lower hourly rate than your co-workers, effectively 6 percent less if they don’t contribute to KiwiSaver.” 

The Ministry for Business, Innovation and Employment (MBIE) notes that it is unclear how widespread the use of total remuneration clauses could be as employment contracts are private.

KiwiSaver review

The total remuneration loophole in KiwiSaver was briefly closed in 2008 but was reopened after a change of government post-election later that year. It has remained open for the past 13 years. 

Consumer thinks it is time for the government to close the loophole to ensure KiwiSaver is fair for all New Zealanders. 

In 2019, the Review of Retirement Income Policies by the Te Ara Ahunga Ora Retirement Commission made 19 recommendations to enhance KiwiSaver, including phasing out KiwiSaver contributions as part of total remuneration packages.

The Minister of Commerce and Consumer Affairs David Clark responded to the review last December. As a result, MBIE is leading work on reviewing five of the 19 recommendations. This includes the removal of KiwiSaver in total remuneration packages. MBIE stated there is no set timeframe for this work. 

Consumer NZ tips:

If you’re negotiating pay for a new role, make sure that you fully understand whether your pay includes or excludes KiwiSaver. 

If you’re unclear about how your current gross pay and total remuneration is made up, ask your employer to explain these to you to make sure you understand how your take-home pay is calculated. 

Ensure that your weekly/fortnightly salary statement displays this information, including tax paid.

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