KiwiSaver evaluation reports
Employer Panel: Phase 2 report
Research Report 2.3
IRD Shoulder Number:
Document summary: Presents findings from the second 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 that aims to make regular saving for retirement easier for New Zealanders (KiwiSaver Act 2006, part 1, section 3, p.13).
Individuals' savings are facilitated principally through the workplace. This means that employers have to meet requirements set out in the KiwiSaver Act 2006. The Government's intention was to design and deliver KiwiSaver in ways that minimised employers' compliance costs.
The employer panel is one part of the KiwiSaver implementation evaluation,1 2 which seeks to address questions about how the initiative is working. The evaluation is using the panel to assess whether employers are implementing KiwiSaver as intended, without incurring unnecessary compliance costs.
The evaluation used a qualitative methodology for the employer panel. Qualitative methodology provides a detailed understanding of research participants' subjective perceptions and experience of a phenomenon, in a specific context. Qualitative research findings can be used to draw conclusions that are based on similarities and differences in the participants' views and experience. The findings cannot be used to make general conclusions about the study's population because the results are not representative of that population due to the small sample size.
The findings from the employer panel provide a detailed understanding of how the interviewed employers are implementing KiwiSaver in its early days. The results also give information about the factors influencing the interviewed employees' initial decisions related to the initiative.
The panel is not intended to give statistically valid data that can be used to make estimates about the characteristics of the whole employer and employee populations. Its findings will provide direction for the KiwiSaver evaluation's quantitative surveys of employers, and individual members of the public, which are scheduled for 2009-10 and 2012-13.
The employer panel is being conducted in phases. Phase 1 was reported on in December 2007 (Inland Revenue 2007a). This report presents findings from the second phase3. The third and final phase is planned for June 2009, approximately two years after KiwiSaver started on 1 July 2007.
Objectives
The objectives of phase 2 of the employer panel are to:
- follow-up on issues that were raised in phase 1 (for example, the contributions refund process for automatically enrolled employees who opt out)
- collect information on aspects of KiwiSaver that employers were still making decisions about in phase 1 (eg how employers with existing workplace superannuation schemes have accommodated KiwiSaver)
- gather information about KiwiSaver design features that started after phase 1 (eg the effect of the compulsory employer contributions (CEC) on employment contract negotiations).
Method
Semi-structured interviews were held with all of the 34 employers who took part in phase 1 of the panel. At the time of the interviews, 29 of the 34 employers had at least one KiwiSaver member. The participating employers cover a range of locations, sectors, sizes and staff turnover rates. A sample had an existing workplace superannuation scheme.
Interviews were also conducted with 45 employees from 21 of the organisations, 39 of whom had been interviewed in phase 14. Twenty of the 45 staff were KiwiSaver members at the time of the interviews.
The interviews were held during June and July 2008. This was two months after the CEC and employer tax credit (ETC) started (1 April 2008). Most of the interviews were completed prior to the time contributions holidays began and the member tax credit (MTC) started to be paid (1 July 2008)5.
Conclusions
Overall, the interviewed employers found it easy to administer KiwiSaver. They seemed more certain about how to meet their obligations, and less concerned about operational issues, in phase 2 of the panel than in phase 1. KiwiSaver's financial incentives continue to encourage employees to take up the initiative, while the minimum 4% contribution rate is still the main feature that discourages some staff from joining it. The latter is one of the issues raised in the evaluation. The other issues are (a) providing more explicit information about members' KiwiSaver contributions, (b) ensuring that employers understand the ETC calculation and (c) educating people about saving for retirement.
Administration (including CEC and ETC)
In general, the interviewed employers appear to be administering KiwiSaver as intended. The initiative has become part of their usual staff induction and payroll processes. The employers were informing employees about KiwiSaver, and had ways of checking their eligibility to join the initiative. A small number of the participating employers knew that they had mistakenly joined ineligible staff to KiwiSaver. This was due to "glitches" in their information collection systems (for example, recruiting managers not passing copies of new employees work permits to payroll staff).
A few employers noted that they collect information about employees' citizenship status as part of their recruitment process, because it is an offence under the Immigration Act 1987 to employ a person who is not legally able to work in New Zealand. They do not collect age related information from potential employees, because there is no legislative requirement to do so. Having to check whether employees meet KiwiSaver's age criteria or not, is a potential source of tension between employers and employees, as some staff do not want to provide their age or date of birth.
Panel participants have become more familiar with how KiwiSaver works. For example, fewer expressed concern about the timing of contribution refunds for new employees who opt out of the initiative, than in phase 1 of the employer panel (although some still got complaints from employees about the timing of refunds). This might reflect the interviewees' expectation that people will have to wait for refunds. Also, the lag time could be less of an issue for participants because Inland Revenue has shortened the time it takes to process refunds. Most found it easy to include the CEC and ETC calculations in their PAYE (pay as you earn) process, and understood how to claim the tax credit.
Interviewees are now seeking more information about having a KiwiSaver account. In particular, they would like a detailed explanation of how and when contributions are passed between employers, Inland Revenue and scheme providers. Members also want up-to-date information about the transactions in their respective scheme accounts.
Effect of business size
As in phase 1, business size affected the employers' approach to KiwiSaver implementation. The small medium enterprise (SME) employers tended to implement the initiative on an "as needs basis". For example, they had started paying the 1% CEC on top of members' gross pay from 1 April 2008. However, the majority had put off deciding how they would accommodate the higher CEC rates, until the ETC no longer offset most of the CEC cost-many had not worked out when that would be.
In contrast, the large enterprise employers had decided how they would manage KiwiSaver in the future. These employers needed to work out how they were going to operate KiwiSaver and their existing workplace superannuation schemes they had either established a KiwiSaver compliant scheme as part of their current scheme, or operated the current scheme independently of KiwiSaver. They also had to consider how they were going to accommodate the CEC across different types of employment contracts there was a slight tendency to pay the CEC on top of gross pay for employees on a collective contract, and to suggest making the CEC part of a total remuneration package6 for employees on individual employment contracts.
Business size also continues to affect employers' KiwiSaver compliance costs. It is likely that the SMEs would have higher per employee compliance costs than the large enterprises. This is because much of the cost for complying with legislation is fixed and SMEs are unable to spread these costs across large operations (Kitching 2006). The evaluation collected information about the panel employers' aggregate compliance costs, rather than their compliance costs per employee. In terms of aggregate compliance costs, the interviewed SME employers had incurred minimal time and financial costs. This was largely because they were administering the initiative for a small number of staff. In comparison, the large enterprises' aggregate compliance costs were relatively high. The higher costs were mainly due to the time required to administer the initiative for a larger number of employees.
The large enterprises tended to have higher transition costs than the SMEs, as the former had to decide how to run KiwiSaver and existing workplace schemes, accommodate the CEC in different types of employment contracts, and build CEC and ETC functionality into complex payroll systems.
Factors affecting take up
KiwiSaver's financial incentives (eg the CEC, kick-start payment) are continuing to encourage employees to join the initiative, as intended. The desire to save for retirement is also continuing to motivate staff to take up the initiative.
The minimum 4% contribution rate is still the main feature that discourages some staff from taking up KiwiSaver. These employees believe that they cannot afford to contribute 4% of their gross pay - a few employers and employees had agreed that the employers would contribute 2% towards the employees' minimum rate.
The same personal circumstances as those identified in the first phase, were discouraging some staff from taking up KiwiSaver (eg having investments they are going to use for retirement income). The possibility that future governments might change, or discontinue, KiwiSaver continued to dissuade several employees from joining it.
Interviewees were less likely in phase 2 than in phase 1, to cite locked-in savings as a feature that had deterred staff from joining KiwiSaver. This might be due to better understanding of KiwiSaver as a long-term savings initiative, members not "missing" their contributions which are deducted at source, or higher awareness of contributions holidays amongst the employers and employees.
Members are more aware of KiwiSaver's general features (eg MTC) than its home ownership features (eg mortgage diversion). This is to be expected, as there has been no public awareness-raising campaign about mortgage diversion. Also, Housing New Zealand has not started its communications campaign about the first home withdrawal and first home deposit subsidy.7
Financial education
Interviews with the panel suggest that there is still a need for financial education for both KiwiSaver members and potential members. Some panel participants wanted guidance for members on how to choose a scheme provider and the information members should expect to get from their provider. They were also seeking information on investment risk profiles, the products scheme providers invest in and how to select an investment fund.
One way of informing employees about general money management (eg budgeting, repaying debt) is to make such information available to staff in the workplace. Whether or not panel participants believed that the workplace was an appropriate environment for making general financial management information available to staff was influenced, in part, by the meaning they attached to the word "workplace".
For some, "workplace" meant the employer. This interpretation led them to view the workplace as an inappropriate environment for providing general money management information because, doing so, was regarded as outside people's expertise and responsibilities as an employer.
For others, "workplace" meant the employing organisation or the physical work environment. This interpretation led them to perceive the workplace as an appropriate environment for informing staff about financial management. This is mainly because they believed that the information would benefit employees.
Recommendations
Administration
On the whole, the participating employers found it straightforward to manage KiwiSaver. However, some did raise issues relating to the administration of the initiative, which have led to the following recommendations-these primarily relate to increasing employers' and employees' awareness of aspects of Inland Revenue's administration of KiwiSaver.
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Inland Revenue KiwiSaver information
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Several employers and employees were uncertain about the process and timeframes for transferring contributions between employers, Inland Revenue and scheme providers-this was both for employees who join through their employer, and those who join through a scheme provider.
Members wanted access to up-to-date information about the contributions that had been passed to their KiwiSaver account (the equivalent of account statements they are used to getting from banks). The evaluation believes that informing members about their KiwiSaver investment would be one of the usual functions of a superannuation scheme provider.
Currently, Inland Revenue provides a summary of members' contributions through the "Manage My KiwiSaver" portal on the KiwiSaver internet site. Members can also view their MTC when it arrives in their account, and all service requests they have made (eg contributions holiday requests). In the future, Inland Revenue is going to use the portal to communicate information that is relevant to all members (eg that the CEC will increase from 1% to 2% on 1 April 2009).
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Calculating ETC
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From 1 April 2008, employers have been able to claim an ETC to help offset the cost of CEC to KiwiSaver and complying funds. An employer can claim the lesser of:
- the actual employer contributions for a member in a monthly payment period
- the maximum ETC an employer can claim per member per month (which is the amount given by calculating the precise number of weeks in a monthly payment period x $20).
Some interviewed employers had had difficulty understanding how to calculate the amount of ETC they could claim. It appears that employers were claiming the lesser of the actual employer contributions per member per week, or the maximum tax credit of $20 per member per week. They should have been claiming the lesser of the actual monthly contributions per member, or the maximum monthly tax credit per member. The uncertainty exists, no doubt, because the calculation is computed on a monthly basis but employers have a weekly entitlement to the credit.
Features and incentives
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As in phase 1 of the employer panel, KiwiSaver's financial incentives are continuing to encourage employees to join the initiative (eg the CEC, MTC, kick-start payment).
The minimum contribution rate is still the main feature that discourages some staff from taking up KiwiSaver - they cannot afford to contribute 4% of their gross pay. A few of the participating employers and employees had agreed to a transitional contribution rate, where the employers' contributions count towards the employees' minimum contribution. This finding has led the evaluation to recommend that it will investigate further the effect of the minimum rate on participation.
Financial education
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Several employers and employees expressed a desire for more information that would help them choose a scheme provider and investment fund. Also, interviewed members were more likely to have actively chosen a contribution rate than a scheme provider and/or investment fund. This suggests that members have focused on whether they should join KiwiSaver or not and the immediate consequences of that decision, particularly what it will mean for their take home pay. There is an opportunity to broaden members thinking, by educating them about how to get the best value from their membership (for example, choosing the most suitable fund for their current circumstances). The evaluation believes that scheme providers have a role in providing such education.
1 The other aspects of the KiwiSaver implementation evaluation include qualitative research with KiwiSaver scheme providers and individual members of the public.
2 The KiwiSaver implementation evaluation is one part of the KiwiSaver evaluation. The other parts include quantitative research with employers and individual members of the public.
3 The findings from phase 2 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 initiative.
4 In phase 1, interviews were conducted with 63 employees. Twenty-four of the 63 were not interviewed in phase 2, mainly because they no longer worked for a recruited employer, or were unavailable at the time of the interview (eg working off-site, on leave).
5 Thirty three of the 34 interviews were held before the Government announced that it was going to amend sections in the Employment Relations Act that cover paying CEC (the announcement was on 12 July 2008).
6 In July 2008, the Government announced that it was going to amend sections in the Employment Relations Act to make it grounds for a personal grievance to treat employees differently on the basis of their KiwiSaver membership status. This announcement was made after the evaluation had completed 33 of the 34 employer interviews.
7 Members who joined KiwiSaver when it started on 1 July 2007 will be eligible for mortgage diversion from 1 July 2008. They will be eligible for the first home withdrawal and first home deposit subsidy from 1 July 2010.
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Date published: 13 Nov 2008
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