How 'Salary Sacrifice' In NZ Can Set You Up For A Better Future

Jul 22, 2021
By Staff writer


What if you don't make a lot of money? Is it still possible to "sacrifice" a portion of your monthly earnings?

To understand what salary sacrifice is, we must first understand how it works and how we can benefit from our earnings in the future.


What is salary sacrifice?

The term itself suggests that a certain percentage of your pay is set aside. It's an agreement between you and your employer in which a specific amount from your salary is deducted and instead paid as an employer contribution to a superannuation or KiwiSaver scheme

In some cases, you can negotiate a total remuneration package with your employer, but you will still receive an employer contribution on top of the package due to compulsory employer contributions (CEC). You should receive a total pay that’s 3% higher than it would be if you didn't contribute to a KiwiSaver scheme.

Employees who "sacrifice" salary to save for retirement will typically have a higher net worth and will want to invest these assets in other investment options. They may also want a higher or lower level of equity investments than many superannuation schemes allow. Salary sacrifice, for investment purposes, is likely to increase demand for more flexible investment options.

KiwiSaver rules on employer contribution

KiwiSaver is an employee savings program designed to help them save for retirement and other expenses. This is clearly different from Superannuation, which has been established solely for the purpose of providing retirement benefits. Employees can contribute a portion of their salary or wages to a KiwiSaver account, to which employers and the government may also contribute funds.

Related article: $500 Of Free Money From KiwiSaver? Here's How


Superannuation is one way for you to save and earn more when the time comes. Its primary purpose is to provide retirement benefits to individuals who are 65 years old or over. 


The rate of superannuation to which an individual is entitled is determined by a variety of factors. These factors include your marital status, living situation, and whether the employee lives with other people, as well as their status.


How much of my pay is being deducted?

The amount deducted from your salary depends on how much you’re willing to pay and your KiwiSaver status. 

Employee contributions can be deducted at a rate of 3%, 4%, 6%, 8%, or 10% of their gross pay. On their KiwiSaver deduction form – KS2, you can inform your employer which rate to use. If you don't specify a contribution rate, the default rate of 3% is used.

As soon as you begin working, you must complete form IR346K, on which you should also include your KiwiSaver details. 

Read the descriptions below to identify your KiwiSaver status.

  • If you're an Active member, you're already a member of KiwiSaver.
  • A status of Automatically enrolled is assigned to new employees who are not yet members but must be enrolled in KiwiSaver.
  • You have an Opt in status if you are thinking about joining KiwiSaver and have completed a KS2 form. You can't opt-out once you have opted in.
  • If your status is Employed for less than 28 days, you can change it to "Automatically enrolled" if your employment lasts longer than 28 days.
  • If you're a new employee who is under the age of 18 or over the age of 65, you will normally be in the Not required to be automatically enrolled status and can choose to opt-in later.
  • If you don't have the legal right to live in New Zealand permanently, you're not entitled to have a KiwiSaver account and its benefits.

Can I change my KiwiSaver deduction rate?

You can ask your employer to change the rate at which KiwiSaver deductions are made from your pay. But even so, unless they agree, they can only change it once every three months.

Can I apply for a KiwiSaver in addition to my current scheme?

You can join KiwiSaver regardless of whether you are a member of other superannuation schemes. If your employer contributes to your current superannuation scheme, your employer may not have to contribute to your KiwiSaver scheme.

Compare KiwiSaver schemes here at glimp and find one that best suits your needs!

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