A couple of weeks ago I read a spate of articles in the New Zealand media that really riled me. And not for the usual reasons….
With the greatest respect to my fellow Kiwis, and a solid dose of empathy for how difficult it can be to stretch incomes to just cover current outgoings, we Kiwis are pretty poor at saving. Research shows that, even if we do save, we’re poor at financial goal setting generally, and many of us have not considered what savings goal we need to be aiming for to give us the lifestyle we want at retirement age.
Knowing this, it’s beyond disappointing to hear some businesses might be actively discouraging their staff from contributing to KiwiSaver (New Zealand’s largest retirement scheme). Apparently some Small to Medium Enterprise (SME) bosses “see KiwiSaver as an extra cost and administrative burden”.
In NZ, employees choose their contributIon rate (3, 4 or 8% of their gross income). When employees are contributing (ie not on a KiwiSaver holiday or on unpaid leave) employers must contribute a legal minimum of 3% of gross salary. Employers get out of their obligation where staff “opt out” of the scheme or go on a contributions holiday. It’s also possible for employers to include their KiwiSaver contribution within a “total remuneration package” (meaning their contribution comes out of the “headline” salary. Thus it is entirely possible for employers to be an impediment to KiwiSaver uptake or even to discourage employees from participating, whether actively or through how they structure remuneration packages.
I’m very aware that stretching to a 3% gross contribution can be beyond a lot of young and low wage workers. I’m sure those workers are significantly represented in the figures suggested in the article above. However, ranting about addressing NZ’s low wage economy, or the ways in which the KiwiSaver regime could be more accessible to Kiwis, will have to wait for another day.
At Media Suite, we’re an SME. One of the special things about operating at this scale is the genuine, human connections within our team. I cannot imagine de-prioritising the long-term financial needs of those (awesome) humans due to “cost” and “administration” (when both can be planned for). On the administrative side, we use exceedingly cost effective software which makes administering KiwiSaver pretty close to effortless, and certainly no more effortful than complying with usual employer tax requirements. The compulsory employer KiwiSaver contribution is 3% of an employee’s gross salary, thus totally proportionate to total staff cost. Frankly, if your margins are so slim that this is seriously material, I’m not convinced you ought to be in business.
Obviously, every business is different. I really don’t want to come across as arrogant or insensitive to those SME owners who are doing it tough. I know what it is like to be the last person paid. I know what it’s like to have your personal assets on the line for business failure. We don’t run a business with a strong cyclical/seasonal revenue, and I can appreciate that might complicate your forecasting. We’re blessed to run a business with a highly professional team, in a market where those skills are valued. Even with all that, running a SME is bloody hard work (although I’d also describe it as fun).
I’d say Media Suite’s directors and shareholders collectively feel a moral obligation to organise and run this business in a careful and sustainable way to ensure job and income security for the team is a priority. While I’m concerned that businesses might find administration or cost a genuine reason to discourage participation, I guess I’m also worried those might be bywords for operating an unsustainable business model and/or a touch of self interest.
There’s a great piece of research that gets updated annually which analyses the spending of over-65-year-olds based on Statistics New Zealand household economic data. It then suggests what level of savings the average person will require under certain scenarios. When I read this last year and then worked through a retirement savings calculator, my savings goal was pretty dramatically increased.
Over my professional life, I’ve contributed the minimum and the maximum. I’ve gone on KiwiSaver Contributions Holidays to reduce debt. I’ve watched my partner’s contributions (finally) outstrip mine due to being the one on parental leave. I am undoubtedly very fortunate at this point in my life to be in a position to increase my KiwiSWaver contributions. I’m currently looking at changing funds. At the very least, I’d advocate for Kiwis to actively keep under consideration what they can be contributing and where and when that might change as their lives change. I think employers have a role to play in supporting this conversation.
We’ve been thinking about the importance of an employer’s role in KiwiSaver for a while (thanks to a member of the team, for opening that dialogue). At the end of 2017, Media Suite’s role in KiwiSaver went on our Board agenda. We’ve always been more than happy to contribute our 3%, however, what we mulled at the board meeting was that human behaviour is often “set and forget”. In other words, people tend to fill out their KS2 when they start with us and it’s pretty infrequent that people check or change their contribution rates. Anecdotally, a lot of the team were also pretty passive about managing what fund they were in (or even a bit baffled about how to start considering options). The directors decided we would up our skin in the game and incentivise the team to consider what they are contributing. So, anybody choosing to contribute more than the minimum 3%, will now have their employer contribution increased to 4%.
While a 1% increase doesn’t sound like much, for a SME like ours, with a high staff cost it amounts to a fairly substantial annual sum. We thought it was a good starting point, but there’s always a balancing act between increasing wages in the here and now, and increasing a future benefit. We were beyond delighted to find 70% of the team took some proactive action after this was announced (from signing up, to increasing contributions to checking contributions with a view to increasing them). I’d rate that as a success, and I’d be really interested to know what other businesses have tried to increase staff engagement with KiwiSaver.
We set goals in our business regularly and we encourage the team do the same. It’s never too early for financial goal setting. As individuals, that should definitely extend to the life you want and deserve in your grey-haired years. We’d love to think our team have financial goals in place and to be able to support them in reviewing, adjusting and achieving those. It really is the least we can do as a employer, given that this business is quite literally built by the effort of the humans that work in it.