KiwiSaver evaluation reports
Employer panel: 2007/08 interim report
Research report 2.1
IRD Shoulder Number:
Document summary: Presents findings from the first phase of research with a panel of employers. The purpose of the panel research is to understand how employers are implementing KiwiSaver in the workplace.
Document content:
Executive summary
Introduction
KiwiSaver is a voluntary savings initiative designed to make it easier for New Zealanders to save for their future, particularly for retirement.
Inland Revenue (IR) administers KiwiSaver. The Department's intention was to design and deliver the scheme in ways that assisted employers to meet their obligations voluntarily. For example, KiwiSaver is aligned with the existing pay as you earn (PAYE) process - this includes reimbursing the employer tax credit through the PAYE process to help employers' cash flow and minimise compliance costs.
The employer panel is one part of the KiwiSaver Implementation in the Workplace Evaluation1 which seeks to address questions about how KiwiSaver is working.
The panel is being conducted in phases. This report presents interim findings from the first phase2. Subsequent phases are being planned around key events in KiwiSaver (eg the second phase will be undertaken after the compulsory employer contributions start in April 2008).
Objectives
The objectives of the employer panel are to:
- investigate employers' and their employees' initial experience of KiwiSaver
- identify which KiwiSaver design features and incentives are working as intended and which are not
- assess emerging trends with particular emphasis on understanding factors influencing employers' and employees' decisions related to the scheme.
Method
Semi-structured interviews were held with 34 employers. The employers covered a range of locations, sectors, size, staff turnover and having an existing workplace superannuation scheme.
Interviews were also conducted with 63 employees from 25 of the organisations.
The interviews were held during September and October 2007. This was two months after KiwiSaver started (1 July 2007) but before the enhancements3 announced in Budget 2007 were enacted.
Conclusions
On the whole, the employers found implementing KiwiSaver in their workplace straightforward. They were able to understand IR's KiwiSaver employer guide and set up processes for administering the scheme. Their largest compliance cost was the time they spent learning about KiwiSaver and communicating it to staff. Most employers seemed to accept this transition cost as an inevitable part of mplementing a new government initiative.
Business size influenced employers' experience of implementing KiwiSaver. The large enterprises experienced more difficulties and spent a greater amount of time implementing the scheme than the small medium enterprises (SMEs) did. The reason for this was that the former had a larger number of employees so had more complex human resources processes and payroll systems. They also had to coordinate a team of people who were implementing KiwiSaver. In SMEs, the owner/director or payroll/accounts administrator tended to have sole responsibility for implementing the scheme.
Employers were generally unperturbed by the potential for staff to ask for financial advice. The message from government that employers are not to give such advice was cited often. Many had avoided the possibility of being seen as giving employees financial advice by referring staff, who asked them about the scheme, on to other information sources.
Generally, employers had put off deciding how they would manage the compulsory employer contributions until closer to April 2008 (when the contributions will be introduced).
Some design features and incentives were working as intended. Staff were encouraged to join KiwiSaver because of the ease with which they could save (eg having contributions deducted at source) and they felt like they were getting "free money" (eg the kick-start payment).
Other design features which were intended to ensure that employees were saving adequately for retirement (eg having a minimum contribution rate) and maximise the benefit of saving (eg locked-in savings) appear to have stopped some staff from taking up the scheme because they made it seem inflexible.
Personal circumstances had stopped some employees from taking up KiwiSaver (eg they had other investments). Conversely, personal circumstances had motivated a smaller number of staff to take up the scheme (eg they had reached a stage in their life when they wanted to start saving for retirement).
Contextual factors (eg the possibility that future governments might "tinker" with KiwiSaver) had led some existing employees to postpone joining the scheme until they believed it was running smoothly.
Recommendations
Implementation
Overall, employers' initial experience of implementing KiwiSaver in their workplace was positive. However, some did identify issues they had encountered when putting the scheme in place. The latter led the evaluation to form recommendations that mostly refer to clarifying with employers and employees aspects of the Department's administration of KiwiSaver.
IR's KiwiSaver information
Some employers and employees were left with unanswered questions after reading IR's KiwiSaver employer guide (KS4) and employee pack (KS3) respectively. This is understandable given that the booklets were intended to explain the key points about the scheme - hence the references to other information sources (eg IR's KiwiSaver 0800 number and website, the Retirement Commission's website).
Not being able to use the booklets to answer questions, or validate things they had heard from other sources, frustrated readers who treated the guides as their prime source of information.
Recommendation 1.
IR should promote to employers that its KiwiSaver website is IR's source of comprehensive information about the scheme.
Auto enrolment
Some new employees did not want to be auto enrolled in the scheme. This created tension between employers and new staff in some instances.
Employers can choose to either refund any deductions that they have made but not sent to IR yet, or send the deductions with their PAYE payments and IR will refund the employee directly. The potential for tension between employers and new staff seems to be greater in organisations that have decided to let IR refund employees' KiwiSaver contributions, rather than the organisation itself refunding them.
The reason for this is the delay between opt-out notices being sent to IR and employees getting the refunds. The lag time between KiwiSaver contributions being deducted from new employees' pay and then refunded is due to delays in the contributions refund process. In addition, a fundamental part of the scheme's policy design is that new staff are unable to opt out of KiwiSaver until they have been in their job for two weeks - this is to discourage new staff from opting out of KiwiSaver.
Recommendation 2.
IR should manage employers' and new employees' expectations around the timing of contribution refunds by explaining the refund process to employers in detail (including the evidence IR requires of opted out employees' contributions).
Recommendation 3.
IR should investigate whether the contributions refund process has unintended delays built into it and, if so, examine how it can minimise them.
For example, emphasising to employers that they need to send the KiwiSaver employee details form (KS1) to IR, thereby reducing the number of employer monthly schedules (EMS) that cannot be processed automatically due to insufficient KiwiSaver information.
Choosing a scheme provider
A few employees and employers had found the process for choosing their own scheme provider confusing. They did not realise that choosing a provider was a separate process to completing the KiwiSaver deduction form (KS2).
They also found getting a letter from IR telling them which default scheme they had been allocated to, after they had nominated their own provider, concerning.
Furthermore, employers did not expect to get requests from providers via staff (eg for the organisation's IRD number).
Recommendation 4.
IR needs to set out the process for choosing a scheme provider more explicitly (eg all staff who join KiwiSaver via their employer will be allocated to a scheme and get a copy of that scheme provider's investment statement, even if the staff member has chosen their own scheme).
Recommendation 5.
IR should also raise awareness amongst employers and KiwiSaver scheme providers about the information that providers need from employers and how to get that information (eg an employer's IRD number).
Design features and incentives
Employees identified KiwiSaver design features and incentives that had encouraged them to join the scheme (eg the Government's kick-start payment of $1,000). Other employees and some employers mentioned features that had discouraged staff from taking up KiwiSaver (particularly the minimum contribution rate and locked-in savings). This finding prompted the evaluation to recommend further investigation of features that might not be working as intended.
Minimum contribution rate
The minimum 4% contribution rate is intended to help employees to save adequately for retirement. But it was the most frequently mentioned design feature that had discouraged staff from joining the scheme - they could not afford to contribute 4% of their gross pay. This is a reason given in the Sorted (Retirement Commission cited in Inland Revenue 2007b) decision checklist for not joining KiwiSaver.
Recommendation 6.
Other parts of the KiwiSaver evaluation will investigate whether the minimum contribution rate is influencing participation in the scheme and, if so, how.
Locked-in savings
KiwiSaver is designed as a locked-in savings scheme to maximise the benefit of saving for an extended period of time (eg compound interest). Locking in savings is one of Treasury's guiding principles for a retirement saving scheme. On the other hand, not wanting savings to be locked away is a reason not to join the scheme in Sorted's KiwiSaver checklist (Retirement Commission cited in Inland Revenue 2007b). The inflexibility of having locked-in savings was a commonly mentioned design feature that stopped staff from joining the scheme.
Contributions holidays give employees the flexibility to take a break from saving after they have contributed to the scheme for 12 months. Employees and employers are informed about the holidays in IR's KiwiSaver employee pack (KS3) and employer guide (KS4) respectively. However, the evaluation of KiwiSaver external communications and awareness with employers found that their knowledge of contributions holidays was low. This contributed to employers' perception that the scheme is inflexible (Colmar Brunton 2007).
Recommendation 7.
The evaluation will continue to examine whether locked-in savings is influencing participation in the scheme, including understanding people's reasons for not wanting savings to be locked in and their understanding of the benefits. It will also assess employers' and employees' awareness of contributions holidays.
Financial education
The findings around the minimum contribution rate and locked-in savings, as well as employees' questions about KiwiSaver (eg whether they should join it and which scheme provider they should choose) highlight the need for good financial education, especially if government wants to encourage people to start saving.
Recommendation 8.
IR should continue to coordinate its approach to long-term communications about saving adequately for retirement with the Retirement Commission's approach to financial education.
1 The other parts of the KiwiSaver evaluation include qualitative and quantitative research with employers, employees, KiwiSaver scheme providers and individual members of the public.
2 The interim findings from phase 1 of the employer panel will be used in conjunction with those from other parts of the KiwiSaver evaluation to provide an overall assessment of the scheme.
3 The KiwiSaver enhancements that the Government announced in Budget 2007 included a member tax credit, compulsory matching employer contributions and an employer tax credit (Treasury 2007a).
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Date published: 29 May 2008
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