Feature – Benefits in New Zealand

If you read nothing else, read this …

• There are few tax incentives in New Zealand for employers to provide employee benefits packages and corporate-sponsored pension schemes are on the decline as a result.

• Any company perk is subject to fringe benefit tax, so the cost to the company of providing a benefit is the same as the cost of paying salary.

• The number of organisations offering company cars has begun to increase, partly to boost job retention.

• The government is currently looking at introducing compulsory employer-sponsored pension schemes.

Famous for their love of outdoor pursuits and extreme sports, New Zealanders have demonstrated that they are not a nation averse to risk. Such an attitude is also readily apparent in their approach to retirement, with only 4% of New Zealanders holding assets in a pension scheme compared with 20% of Australians – according to Aon Consulting New Zealand.

Greg Lee, director and actuary at Aon Consulting New Zealand, says: “The unique thing about the New Zealand employee benefits market is the lack of incentives or compulsion to save for retirement.” As such, many look to their salary for their core remuneration. “In New Zealand, cash is king,” says Brent Miller, remuneration consultant for Watson Wyatt New Zealand. “We tend to value cash over benefits.”

Since 1990, when New Zealand’s tax and superannuation laws changed, there has been no compulsion for employers to provide workplace pensions. Unsurprisingly, this has led to a dramatic decline in the number of corporate-sponsored pension schemes, which have fallen by more than 75% over the last 12 years, according to a report from the Government Actuary for the year ended June 30 2003.

The only group of employees that can gain a tax incentive from contributing to a pension scheme are those who earn more than NZD60,000 (£22,100). But with very few tax breaks for the remaining workforce, many existing stand-alone schemes have closed and the benefits have either been paid out or transferred to master trusts, in which several employers participate and share fixed expenses. New Zealanders have also begun to save for themselves.

The effect of a tax-neutral economy also has implications for other employee benefits. According to a survey by consultancy Watson Wyatt, only around half of all organisations provide their chief executives with company cars (51%), club and professional fees (51%), medical insurance (46%), and pension (46%).

Interestingly, the number of employers offering company cars has begun to increase. According to Watson Wyatt’s Miller, this is not “because of a change in the tax laws, but to enable employers to distinguish themselves in a market with low unemployment”.

Looking ahead, there are few indications that the situation in the New Zealand employment market will change radically, with a few possible exceptions.

On 1 April 2004, the Holidays Act 2003 came into force, which increases employees’ statutory allowance for annual leave from three to four weeks from 1 April 2007. This is causing some uncertainty in the market, according to a report from New Zealand commercial law firm, Simpson Grierson, partly because the new law makes no definition of what constitutes annual leave of ‘a week’, which may cause problems where employees work different shift patterns.

Perhaps more significantly for a country that has not traditionally saved for retirement, the government has created a pensions task force to look at introducing compulsory employer-sponsored pensions.

Naturally there is some resistance to changing the status quo, especially by those who benefit from the voluntary savings regime. But there is also a strong argument from their opponents, who argue that people with access to workplace savings schemes have a better track record for saving.