Benefits in New Zealand

New Zealand operates a pensions system with auto-enrolment and compulsion similar to that planned in the UK, while lifestyle perks aiding work-life balance are also commonplace, says Alison Coleman

Despite the differences in climate, accent and lifestyle, New Zealand and the UK may have more in common than most people think, particularly when it comes to some of the employee benefits on offer.

The basic terms and conditions of employment in New Zealand are not dissimilar to those offered in the UK, although there are differences in benefits provision, in particular, pensions. Until last year, pensions were not a particularly strong feature in employers’ packages, except perhaps within larger organisations. The introduction of the Kiwisaver on 1 July 2007, however, has changed all that. This government initiative, aimed at encouraging more people to save for retirement, automatically enrols eligible employees between the ages of 18 and 65 years into a scheme with compulsory contributions.

This is not unlike the UK government’s planned system of auto-enrolment to personal accounts or an existing occupational scheme, which is scheduled to come into force in 2012. Bernard O’Brian, a consultant at Mercer in New Zealand, says: “The approaches are essentially the same, with both governments attempting to get their residents to take more responsibility in saving for and funding their own retirement. However, the real differences are in the execution.”

Prior to the introduction of its Kiwisaver, New Zealand offered a state pension, known as NZ Super, but all additional voluntary retirement savings had no tax incentives.

Now, however, all new permanent employees within the qualifying age range must be auto-enrolled into the Kiwisaver or a qualifying registered superannuation plan that meets similar criteria to the national scheme. Staff can choose whether to contribute either 4% or 8% of salary, although they can opt out of the scheme within the first eight weeks. From 1 April 2008, employers are required to contribute 1% of employees’ salary, a figure which will increase by one percentage point each year until it reaches 4% in 2011. As a transitional measure until 31 March 2012, employers and employees may be able to equally split an employee’s minimum contribution level, however, employers must ensure that they continue to meet their minimum contribution levels as the rate rises.

KiwiSaver schemes tax investors at a level below their marginal income tax rate, delivering tax incentives for the first time. They will also receive a one-off NZ$1,000 (approximately £400) government contribution when they are enrolled into the scheme, fee subsidies and a matching government contribution of up to NZ$1,040 (approximately £415) a year. Although the KiwiSaver is expected to improve savings behaviour, there are some inefficiencies arising from the relatively low tax incentives and the fact investors are taxed at different rates depending on their income. “The system in New Zealand is well designed, although the government may need to consider higher tax incentives to drive savings behaviour to the desired level,” adds O’Brian.

During its first year, take-up of Kiwisaver is thought to have been relatively slow, with preliminary figures showing that around a third of new employees who were automatically enrolled chose to opt out in its first three months. David Bird, a principal at Towers Perrin, says: “If people don’t understand the options they will simply do nothing. With auto-enrolment, the challenge is to find ways of persuading people not to opt out.”

Pensions aside, other benefits offered by New Zealand employers typically reflect employees’ lifestyles. These include life, disability, and income protection insurances, while one theme that resonates with New Zealand employees is flexibility. Benefits that provide this include holiday trading, gym membership and help with childcare. Colin Mitten, a consultant with the New Zealand team at immigration company The Emigration Group, says: “A fundamental difference between New Zealand and UK employers is that in New Zealand family and work-life balance are recognised as important, so work tends to start earlier and finish earlier, freeing up more time to spend with the family or play sport. Typically, the working week finishes at midday on Friday, so Kiwis also get a longer weekend. In New Zealand, it is all about choosing the benefits that fit in with [employees’] current lifestyles.”


If you read nothing else read this…

  • New Zealand operates a pensions system of auto-enrolment and compulsion, which was introduced last year.
  • New permanent employees aged between 18 and 65 years are auto-enrolled into the national scheme, however, they can join a qualifying superannuation scheme laid on by their employer instead.
  • Staff must contribute either 4% or 8% of salary, while employer contributions, will rise by 1% each year up to 4% by 2011.
  • Other perks in New Zealand reflect the way of life. People value options such as community assistance and buying extra holiday, while gym membership and childcare are increasingly important.