The ‘unfair’ loophole in KiwiSaver
Govt in no rush to ban total remuneration
I am full of admiration for the small business employer in your column some time ago who discovered that some staff were not in KiwiSaver and is looking at ways to encourage them to join.
This employer said he was one of many who pay the employer contribution to their staff on top of their wages.
There are others that do not pay the employer contribution. They take it from their employees’ pay and call it total remuneration.
I think this is improper use of a legal loophole and not well communicated. Some staff do not realise that the “employer contribution” line on their payslip is actually being paid by themselves.
I have raised this with my employer and their argument is it would be unfair to staff who are not in KiwiSaver if they paid extra to those who are in it. But surely that’s the point of the scheme, to provide additional benefits to those who join.
Do you know if there’s an appetite to close this total remuneration loophole?
Don’t hold your breath. I asked Minister of Revenue Stuart Nash, and back came this reply: “This issue is not on the Government’s immediate work plan. However, I am open to looking at it if required.”
A spokesperson for the minister added, though, “There is the related but separate question of whether the deduction of an employer’s KiwiSaver contributions effectively takes an employee’s wages below the minimum wage. MBIE has previously advised that this is unlawful.”
That’s an interesting point that some employers should make note of.
Total remuneration — as applied to KiwiSaver — has had a patchy history. Some employers used it when KiwiSaver started in 2007, but it was banned by the Labour Government in mid-2008. However, the National Government allowed it again after it won the election that year.
In the 2014 election, David Parker said that if Labour won it would look into banning it again. But it wasn’t an issue in last year’s election.
In 2016, the Commission for Financial Capability said in its KiwiSaver recommendations that total remuneration is a disincentive to be in KiwiSaver. “The intent of KiwiSaver legislation is that compulsory employer contributions are paid on top of gross salary or wages,” it said.
It recommended “more detailed investigation” of total remuneration, noting that in 2011 the Savings Working Group recommended against allowing it. But things seem to have ground to a halt since then.
How many employers use total remuneration? In 2015 a survey by the Employers and Manufacturers Association found 28 per cent of senior managers and 20 per cent of other staff were affected by total remuneration. But the EMA hasn’t updated that data, and a spokesperson for Business NZ says, “There are no figures that we know of that look into total remuneration of KiwiSaver, either officially through the IRD website and StatsNZ or unofficially through surveys.”
She adds, though, “It’s likely that an increased proportion of employers now use total remuneration, particularly for new employees, as it’s easier for the employer. It could become the main option over time.”
That got me wondering: “Are employers allowed to use total remuneration for new employees but not for those already in their workplace?” Jivan Grewal of the Ministry of Business, Innovation & Employment replies, “There is nothing in the employment law to prevent employers from taking a different remuneration approach for different employees, as long as they are receiving at least the minimum entitlements (including minimum wage and holiday pay).”
So, with the use of total remuneration probably trending upwards, is it good practice?
I can see your employer’s point about treating KiwiSaver and nonKiwiSaver staff equally. And I’m sure there are some employees who can’t afford KiwiSaver. If it weren’t for total remuneration, they would receive less in total from their employer. But I also think many who say they can’t afford KiwiSaver could manage to contribute if they really wanted to.
Says the Business NZ spokesperson, “The key point is that whether it’s total remuneration or ‘on top of ’, both options tend to wash out to the same outcome in the end with wage changes over time. The key issue for employers is the total cost of employment.”
That might be the employer perspective, but it’s not the perspective of many employees. In the end, I agree with your argument. The designers of KiwiSaver surely intended employer contributions to give employees an extra incentive to join KiwiSaver. So I think total remuneration — as applied to KiwiSaver contributions — should be stopped.
Taking stock
You wrote about short selling two weeks ago. As usual, all of the players have missed the fatal flaw in short selling. The funds etc that own the stock (who have an interest in the stock going up) are lending the stock to speculators who have an interest in the stock depreciating.
If the speculators can borrow enough stock they can and do drive the price down. Thus the funds provide the ammunition to have their own assets devalued. The stock lend price is never enough to recompense for this.
I laughed at the comment that funds might have a duty to make money by allowing stock to be lent. The opposite should apply — they ought to be held accountable for losses their fund suffers by providing short sellers with ammunition. It’s the craziest thing I’m aware of in the financial markets.
I’m afraid you might be the one missing the point.
To keep others up with the play — because short selling takes a bit of getting your head around — short sellers gain if the price of a stock (otherwise known as a share) falls.
If they think a price is likely to drop, they borrow shares from someone and sell them straight away. If all goes to plan, they later buy the shares back again at a cheaper price and give them back to the lender.
They’ve gained because they sold the shares at, say, $6 each and bought them back at $4, so they profit by $2 a share — minus the borrowing fee they paid. If the price doesn’t fall, or rises, they end up losing on the deal.
I think I understand what you’re saying — that if we looked at just one short seller in isolation who had borrowed lots of shares and was then selling them, that would tend to push the price down at that time. If lots of anything is being sold — let’s say apples — their price will tend to fall.
But short sellers have to buy the shares back later to give them back to the lenders. So over time there must be about the same number of short sellers in the market buying as selling. While the buyers’ demand won’t necessarily push the price all the way back up again, it will somewhat offset the effect you write about.
The main point is this: the presence of short sellers isn’t what makes prices fall. In a market with no short sellers, prices can still go down. The market just works more efficiently if they are operating.
“Short selling is an activity that is heavily regulated by securities authorities around the world, to ensure there is full transparency and to avoid price manipulation,” says an expert who doesn’t want to be named. “Short selling increases liquidity in a share, it aids price discovery, can be used to force management accountability and allows people to express contrarian views on a stock.”
He adds that there are other reasons why investors — including fund managers — lend stock.
“Securities lending is a wellestablished investment practice. It involves institutional investors lending securities (e.g. shares) to other investors in order to generate revenue.
“Investment banks, brokers and market makers borrow these securities for a variety of reasons, including ensuring settlement of trades can take place and to facilitate market making and other trading activities, such as hedging as well as short selling.”
In it for gain?
Surely the person from the “specialist property accounting firm” last week was being disingenuous? Anybody with a pulse can do the numbers and they consistently say that, in Auckland at least, it has not been possible for many years to achieve a realistic rate of return from home rentals when short and long-term maintenance, downtime between tenants, accounting fees etc are properly accounted for.
Anybody purchasing a house or unit to rent can only have been hoping for a capital gain.
If the IRD had pursued capital
True. There are, though, some landlords who claim they bought their rentals with the idea of keeping them. See next week’s column.
Morgan’s got a point
I could not agree more with your comments last week about the intentions of rental property investors to make capital gains, at least in Auckland where gross yields are typically 2.5 to 3.5 per cent.
When investors account for around 40 per cent of residential sales in Auckland, the fact that they are willing to pay so much unquestionably has an inflationary effect on the market.
The issue with rules based around intent is that you can’t prove it. That is why I agreed with one (probably only one!) of Gareth Morgan’s policies — to tax such investments at a deemed rate of return, if the actual return (excluding capital gain) was less than that of long-term government bonds.
That takes all the subjectivity out of it.
And for cynics who say that would never work, it’s already in place for international share investments (excluding Australia and small investments). Unfortunately, it would be politically suicidal for a government to apply the same strategy to residential property investments, and thus the gross imbalance of New Zealanders’ investments towards property continues.
I’m not sure it would be so damaging politically. Most voters are not landlords, and I doubt if there’s a huge sympathy vote for landlords. I’m sure the Tax Working Group will at least look at Morgan’s idea.
It’s activity that counts
Last week someone wrote, “I hear that some people believe residential investors (landlords) push property purchase prices up to the detriment of first-home buyers. But to me that seems a bit counter-intuitive.”
To me it is almost a self-evident truth. When investors are buying, they buy one property, and there’s one less for the others to fight over.
Speculation about what might be in a particular individual’s mind doesn’t give much useful insight into average, or market, effects. People who fall in love with a house don’t change the market, because that always happens. Likewise, investors may put a lot of time in. That always happens, when they are active.
It is the activity that counts. Can't argue with that.
Mary Holm is a freelance journalist, ● a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won’t publish your name. please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice. AMP Home Loans ANZ ASB Bank of China China Construction Bank Bank First CU Bank General Finance NZ HSBC Premier ICBC Kiwibank Kookmin Bank BS Auckland Baywide SBS Bank Sovereign TSB Wairarapa Building Society ANZ ASB Asset Finance what they offer of Baroda Bank of India BNZ Co-operative Bank F E Investments Direct First C U Finance GoldBand Finance Heartland Bank HSBC Premier ICBC Kiwi Bonds Liberty Financial Kookmin Bank NZCU Auckland Baywide NZCU Central CU Nelson BS Police C U SBS Bank TSB Bank UDC Finance Wairarapa Building Society Floating 6.24 5.79 5.80 5.75 5.90 5.60 5.75 5.60 5.65 5.95 5.79 5.89 5.70 5.80 5.85 6.10 6.20 6.15 5.30 5.89 5.90 5.80 5.70 5.95
Min amnt $ 10,000
10,000 10,000 10,000 10,000 10,000 5,000 1,000 5,000 5,000 1,000 10,000 10,000 1,000 10,000 5,000 10,000 10,000 1,000 1,000 5,000 1,000 5,000 10,000 5,000 5,000 10,000 4.35 4.35 4.39 4.85 4.39 5.10 4.39 4.89 7.00 6.25 4.79 4.19 4.59 4.29 5.10 5.10 NZCU 5.45 4.86 4.29 4.39 4.29 4.85 4.39 6 mths 3.25 3.25 Bank 3.30 3.25 3.25 3.25 Finance
Fixed (years)
2
4.65 2.25 3.70 2.50 2.00 3.45 2.80 3.25 1.75 3.25 3.95 3.10 3.50 3.50 3.85 3.10 3.30 3.30 3.30 3.30 3.15 3.45 3.30 3.30
4.55 4.59 4.89 4.49 5.10 4.59 4.99 7.25 6.50 5.05 3.95 4.75 4.49 5.30 5.45 - 5.50 4.94 4.64 4.59 4.55 4.99 4.55 1yr 3.50 3.50 3.40 3.70 3.50 3.50 3.45 4.80 3.95 3.80 4.00 3.80 3.60 2.90 3.35 1.75 3.40 4.30 3.30 3.75 3.70 4.30 4.95 3.50 3.40 3.35 3.55 3.25 3.70 3.60 3.40 5.59
6.09 5.59 BNZ 6.09 Co-operative 5.59 Heartland 8.55 Housing 5.69 5.59 5.85 5.39 Nelson NZCU NZCU Resimac 5.67 5.55 5.59 5.69 Westpac 5.59
In your interest
3yrs 3.80 3.80 5.70 4.05 4.00 3.75 3.90 5.50 5.50 General 5.75 5.75 3.75 3.00 3.95 Kiwibank 3.85 4.45 3.55 NZCU 4.20 Aotearoa 5.50 4.00 RaboDirect 3.90 4.00 4.05 3.85 Westpac 3.80