About half of employers use total remuneration packages where the employee's KiwiSaver contribution comes out of their own salary. With compulsory contributions set to rise to 12 percent, providers say this structure could significantly reduce take-home pay for affected workers.
National's plan to make KiwiSaver compulsory has reopened a debate about a pay structure that providers say is fundamentally at odds with the intent of the scheme.
The issue is total remuneration packages. When an employer offers this type of arrangement, the employee's own KiwiSaver contribution — and the employer's contribution — both come out of a fixed total amount set aside for salary. That means the worker is effectively paying their own employer contribution, rather than receiving it as an extra benefit on top of their base pay.
The result, as RNZ reported: someone on such a package takes home 7 percent less than if they had opted out of KiwiSaver entirely. Under National's proposal to lift combined contributions to 12 percent, that gap could widen to 12 percent for affected workers.
It has been estimated that about half of New Zealand employers use total remuneration for at least some employees, with a quarter using it across their entire workforce.
Koura Wealth founder Rupert Carlyon said if KiwiSaver was being made compulsory and contribution rates were rising, the total remuneration structure would have to go. "Internationally, they've used incentives and tax breaks for everyone to contribute to superannuation to make people feel good about it. Here we're just saying there's no real incentive. It's just, you have to do it, which I'm not 100 percent convinced is the right answer because it starts looking like a tax."
Pie Funds chief executive Ana-Marie Lockyer said implementation details around how employer contributions would interact with total remuneration packages would be important for both employers and employees. Booster chief executive Diana Papadopoulos raised a similar concern: "The issue of total remuneration arrangements needs to be addressed. If they're not used appropriately it can have a really negative impact on people who will miss out on the contributions they deserve."
National has said ending total remuneration is not part of the policy it announced, but that it is open to considering it.
The broader question is how compulsory contributions would handle lower-income households already stretched by cost-of-living pressures — a concern that Simplicity's chief economist raised in earlier coverage of the policy.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.