New Zealand: Universal KiwiSaver and Variable Savings Rates - the election lines are drawn

Brief Counsel
Last Updated: 7 May 2014
Article by Mike Woodbury, Tim Williams and Emma Harding

Most Read Contributor in New Zealand, September 2016

Labour's debate-worthy proposals to make KiwiSaver compulsory for employees, and to give the Reserve Bank a role in varying contribution rates, raise interesting implementation issues. Our Australian neighbours have had compulsory superannuation in place for around 20 years and a comparison with their model throws up a number of questions. We look at some of those here.

Exceptions to compulsion

Compulsion in Australia carries with it, of necessity, some reasonably complex exemption provisions. There are approximately ten categories of fully or partly exempt employees, who include those:

  • receiving a before-tax salary or wages of less than AU$450 in any calendar month
  • aged under 18 and working 30 hours per week or fewer.

The other exemption categories cover such things as certain work done outside Australia, earnings above the maximum super contribution base and part-time employees doing work of a domestic or private nature.

Labour has so far confirmed that its universal KiwiSaver regime will exempt very low earners (with an income threshold likely well below the minimum wage). It will also exempt the self-employed and business owners.

The intended carve-outs are otherwise unclear, though Labour signals that exceptions would be "limited to those which apply to the Australian scheme".

Importantly, we do not yet know whether the current grandfathering exemptions (whereby superannuation contributions which began before 1 April 2008 offset an employer's KiwiSaver obligations) will be retained so that:

  • those employers need not also contribute to KiwiSaver for the relevant employees, and
  • those employees need not join and contribute to KiwiSaver.

Clarification is needed as to the intended workplace savings interface more generally.

Contributions holidays

Compulsion and the existing facility for a potentially 'evergreen' employee contributions holiday (irrespective of hardship) would make strange bedfellows. Contributions holidays are not permitted in Australia, where the compulsion regime is employer contributions-based.

Labour's universal KiwiSaver proposals are silent on what would become of a current KiwiSaver scheme member's ability to take a contributions holiday, entirely as of right and for renewable five-year periods, after 12 or more months' membership.

We expect it is contemplated that this contributions holiday facility would be retained but tightened up - perhaps so as to require a much shorter maximum holiday period between elections (with an employee then having to notify elective renewals more frequently).

VSR - doing the sums

Employers are responsible for deducting employees' KiwiSaver contributions from salary or wages, adding their own contributions (from which contribution tax must first be deducted) and then remitting both contribution streams to Inland Revenue. This means that they must alter their payroll systems to account for any changes to minimum contribution rates.

The numerous employee and employer contribution rate changes since KiwiSaver's inception, and last year's removal of the employer's superannuation contribution tax exemption, have already caused difficulties for some employers despite some fairly long lead times. Variable Savings Rate (VSR) changes made in response to economic fluctuations might lead – unless very carefully signposted and kept simple – to still more confusion and calculation errors.

Labour has signalled that the VSR mechanism would apply only to employee (not employer) contributions to KiwiSaver, meaning that while it would impact on employees' take-home pay, it would not impact on employers' remuneration costs.

Total remuneration

As the law stands, an employer's KiwiSaver contributions must be paid on top of each employee's salary or wage entitlements (making KiwiSaver employer contributions a 'use it or lose it' employment benefit) unless the employer obtains the employee's consent to a 'total remuneration' arrangement whereby:

  • the employer's KiwiSaver contributions are deducted from the employee's before-tax salary or wages, and
  • conversely, if the employee chooses not to join KiwiSaver (or takes a contributions holiday) his or her salary or wages increase by the amount of what would otherwise have been the employer's before-tax KiwiSaver contributions.

If there was to remain a facility for contributions holidays under universal KiwiSaver, we expect that Labour (having previously outlawed them) would look again at the permissibility of total remuneration arrangements. This is because making employer contributions tradable for cash nullifies a key KiwiSaver contribution incentive.

Other issues

We assume that opt-outs (following auto-enrolments) would become a thing of the past under universal KiwiSaver.

It remains unclear how the gradual increase from the current minimum aggregate KiwiSaver contribution rate of 6% (3% employee and 3% employer) to 9% would impact on employee and employer contribution rates, though continued equivalence – i.e. in due course 4.5% each – seems Labour's likely intent.

Labour's policy refers in several places to using the VSR mechanism to vary the employee contribution rate for "work based" savings - indicating that it may contemplate applying it not only to KiwiSaver schemes but also to grandfathered workplace savings arrangements. This would be unworkable for defined benefit schemes. It would also, in our view, complicate the administration of other non-KiwiSaver schemes and plans to an extent which considerably outweighed any potential economic upside.

We will monitor with interest the emerging details of the proposed VSR and compulsion arrangements.

One thing is clear from the energetic and numerous responses (pro and con) to Labour's proposals. This looks set to be (not for the first time) an election driven by savings issues.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Emma Harding
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.