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State sector workers get retirement savings help

5 November 2003 Media Statement

State sector workers to get retirement savings help

Prime Minister Helen Clark and State Services Minister Trevor Mallard today announced a new retirement savings scheme for the state sector.

The new government scheme will see state employers match employee contributions to an employee's retirement savings.

Helen Clark and Trevor Mallard said the government-subsidised scheme is an important step towards rebuilding the public sector after the cutbacks of the 1990s.

"Today's announcement meets two important government objectives. We are dedicated to building a strong public service, and we are also intent on promoting retirement savings amongst employees. This scheme models the type of arrangements which the government would like other employers to develop.

"It is important that the government - as a major employer - sets a good example in encouraging retirement savings. This scheme will help ensure better living standards for many New Zealanders in their retirement years."

The scheme will be available to state sector employees in government departments, employees in the state school sector (including support staff) and registered teachers employed by free kindergarten associations, if they are not part of an existing employer-subsidised scheme.

It will run alongside the primary school teachers' scheme, introduced last year.

The retirement savings scheme is one of the fruits of the Partnership for Quality Agreement. The government, the PSA, the Council of Trade Unions, and NZEI have been working together to develop the scheme over the last year.

Employees joining the scheme can choose their own level of contribution, and the government will match that up to a maximum of 1.5 per cent of salary in the first year and 3 per cent in the second year, less withholding tax.

It is estimated the scheme will cost $19 million in year one, and $32 million in year two.

Employer contributions will be on top of employees' remuneration, and will not be exchangeable.

Questions and answers are attached.

Questions and Answers - state sector retirement savings scheme

When will the scheme be operational?

The retirement savings scheme will be operational from July 2004.

Who is eligible?

The scheme will apply to employees of government departments and entities for which the State Services Commissioner has statutory responsibility for negotiating collective agreements. About 96,000 employees are eligible.

These include:

- the 35 public service departments;

- the six non-public service departments (Defence Force, SIS, Office of the Clerk, Parliamentary Services, Police, Parlimentary Counsel Office);

- the state school sector (including support staff); and

- registered teachers employed by free kindergarten associations.

Those employees who already receive employer contributions greater than the maximum (as stated for this scheme) will not be entitled to additional employer contributions.

How will contributions to the scheme work?

Employees will be able to choose their desired level of regular contributions, paid directly from their salary. Employers will match these contributions up to a maximum of:

- 1.5 per cent of gross salary in year 1, less withholding tax ; and

- 3.0 per cent of gross salary in year 2, less withholding tax.

The employer contributions will be in addition to total remuneration, and not exchangeable for cash or other benefits.

Employer contributions for the existing primary school teachers' scheme will increase to (the equivalent of ) 3.0 per cent (less withholding tax) in 2004, then pause to align with the new scheme.

Who will be the retirement savings scheme providers?

Employees will be able to choose from a limited range of investment providers and investment funds that will be authorised to accept employer contributions. It is likely that these providers will be selected via a competitive tendering process to be undertaken in November 2003.

What are the other features of the retirement savings scheme?

Work is being undertaken on the final features of the scheme but it is likely to include the following:

- The scheme will be voluntary for employees.

- It is not linked to length of service so new employees will be eligible.

- It will be a defined contribution scheme.

- It will be portable and transferable.

- Administrative costs and fees will generally be paid for out of contributions. However, this will be subject to the terms of any existing arrangements, and any future negotiations within individual agencies.

- Employer contributions will vest immediately to the employee's account.

- All contributions (other than employees' "voluntary" contributions) will be locked-in until retirement (possibly subject to some hardship provisions).

- Employer contributions will be back-dated to 1 April 2004, subject to them being matched by employee contributions.

How will the employer contributions be funded?

Employer contributions will be funded from "new money' held in Vote State Services. This "new money' will cover employer contributions to the stated maximums. If individual agencies negotiate to pay higher contributions or administrative costs, this will be funded directly from agency baselines.

The total cost of the scheme will depend largely on the uptake. Based on an uptake of 30 per cent of eligible employee, the costs are anticipated to be:

- $19 million in year 1

- $32 million in year 2

The funding mechanism will be reviewed during the project implementation period, particularly for its suitability beyond year 2.

Who will manage the establishment of the scheme?

The establishment of the scheme will be managed by the State Services Commission and Treasury, in partnership with the PSA and other state sector unions.

How did the scheme come about?

The scheme has been established in accordance with the Partnership for Quality agreement between government and the PSA, and is the result of work undertaken within the Tripartite Forum, involving the Minister of State Services, the PSA, and public service chief executives.

Is this scheme a first?

The previous superannuation scheme for government employees (the GSF) closed to new members in 1992. This scheme is therefore the first major initiative across the whole of government in 11 years. However some individual departments have initiated their own schemes and arrangements, some of which will be integrated into this new scheme.

ENDS

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