Workplace savings schemes for PSA members
The following retirement savings/superannuation schemes apply in most of the workplaces where the PSA has members. The information below is a summary of key points only – for full information on any of these schemes please go to http://www.superscheme.govt.nz
1) State Sector Retirement Savings Scheme (SSRSS). The scheme applies in the public service and some crown entities. The SSRSS is a defined contribution scheme* with an employer contribution of between 1.5% and 3%. It was closed off to new members in 2008.
2) KiwiSaver is a defined contribution scheme with a minimum employer contribution of 2%, increasing to 3% in 2013. The government contributes a $1000 kickstart on joining KiwiSaver and up to $10 a week as a tax credit while members are contributing. KiwiSaver is available to all New Zealanders regardless of who their employer is. The tax credit was reduced from up to $20 a week to $10 a week in budget 2011.
3) Government Superannuation Fund (GSF) is defined benefit scheme^. It is an old scheme that was closed off to new members in 1992. Members are to be found primarily in the public service, the health and education sectors and in other crown entities and state-owned enterprises.
4) National Provident Fund (NPF) consists of a number of different schemes, some of which are defined benefit and others defined contribution. There is a govt guarantee and a minimum 4% return on investments for the defined contribution schemes. The NPF was closed off to new members in 1992 and current members are to be found mainly in local government but also across a range of government services.
5) Individual Retirement Plan (IRP). The IRP is a defined contribution scheme that was established for state sector employees in the public service once the GSF was closed to new members. There is no minimum or maximum contributions.
NB: * a defined contribution scheme is a scheme where the benefits consist of contributions from employees and employers, plus earnings. KiwiSaver is a defined contribution scheme but it has additional contributions from the government.
^ a defined benefit scheme is a scheme where the benefits are generated by a formula based on length of service and income over the last few years of service (5 years in the case of the GSF).
New Zealand operates a tax system on retirement savings known as TTE. That is, employer contributions are taxed, the return on investments are taxed and the benefits are tax free. This model affects the different schemes in different ways:
SSRSS – most employers pay the tax on the employer contribution on behalf of the employee, meaning that employees receive the gross employer contribution in their account.
KiwiSaver – under its original design the minimum employer contribution of 2% was tax free. Budget 2011 made the total employer contribution taxable, not just contributions over the minimum of 2%.
GSF – as a defined benefit scheme GSF cannot be subject to the same taxation regime as the defined contribution schemes. Nonetheless, in 1990 adjustments were made to the benefits under the scheme to mimmick the effect of the defined contribution taxation regime. Despite changes to taxes since then no readjustment has been made to GSF benefit levels. The PSA has supported the Government Superannuitants’ Association (GSA) in their efforts to get this changed.
IRP – employer contributions to the IRP have always been taxable and some individual employers may pay that tax on behalf of members.
Total remuneration is the provision of a remuneration package in its totality (or majority) instead of its component parts, in order to reflect the cost to an employer of the benefits provided. Employer contributions under total remuneration packages are generally tradable for cash – the employee can accept the contribution as wages now rather than as deferred income when they retire.
The PSA is opposed to including retirement savings scheme contributions in total remuneration packages because:
1) Scheme members are left feeling that they are paying the employers’ contribution out of their salary, which undermines the motive to save for retirement. This leaves members at risk of not having enough money when they retire.
2) Employer contributions to retirement savings are like other terms and conditions that are available to everyone but which not everyone will utilise to the same extent e.g. sick leave. Non savers do not have to be compensated in the same way that members who do not fall ill are not compensated for unused sick leave.
3) Members of retirement savings schemes are deferring the benefit from the income and sacrificing some of their income now, whereas non-savers are making no sacrifice or contribution.
4) For GSF and NPF members the need to maintain the scheme funds means that when the funds perform badly the employer contribution can increase to compensate. Under a total remuneration arrangement this can lead to a drop in take home pay and have a detrimental impact on benefits.
Many employers in the state sector and local government include their retirement savings contributions in total remuneration packages. The loss of central funding for employer contributions for the SSRSS and KiwiSaver in the state sector and the prospect of amendments to the KiwiSaver legislation means that the packaging up of employer contributions into total remuneration arrangements is likely to become more common.