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Axe on employer contribution tax good for Kiwis

Wednesday 13 September 2006

Axe on employer contribution tax cuts Kiwis good deal

The Government.s decision not to deduct tax from an employer.s contribution into KiwiSaver, up to a maximum 4 per cent of salary or wages, when matched by an employee, has seen the evolution of a genuine retirement savings initiative with good long-term incentives, says Roger Perry, AMP General Manager, Savings & Investments.

.We welcome the introduction of KiwiSaver, particularly given that saving in the workplace is the most effective way to encourage New Zealanders to save for their retirement. This latest development is really interesting when you consider the benefits of saving the tax that would have been payable on an employer.s contributions over an extended period.

.On average earnings of $42,000, the extra amount added to savings each year on a 4% employer.s contribution is over $550. This might not sound like it.ll make you rich but if you invest it for 20 years, while earning a 4% real return (after tax and inflation); it will accumulate to $17,000. And over a 40-year period, it will amount to $55,000. That.s a useful contribution towards a comfortable retirement and a nice incentive for New Zealanders to support the KiwiSaver scheme,. says Mr Perry.

Benefits of saving the tax on your employer.s contributions
Salary / 20 years of saving 8% salary / 20 years of tax savings* / 40 years of saving 8% salary / 40 years of tax savings*
$42,000 / $103,000 / $17,000 / $332,000 / $55,000
$80,000 / $196,000 / $32,000 / $632,000 / $104,000
* earning 4% real return, after tax and inflation

AMP, which holds the number one position in the workplace savings market, is encouraged by the increasing interest from employers who see the competitive advantage created by offering a retirement scheme, in a tight labour market.

.Employer-sponsored workplace savings schemes, an area in which we have a strong offering, seems to be capturing the interest of more and more New Zealand employers who are getting serious about .winning the war for talent..

The introduction of a tax exemption for employer contributions means that those who really want to attract the best talent shouldn.t be thinking .can we afford to make contributions?. but .can we afford not to?. ., he says.

Many are predicting that KiwiSaver will stimulate future savings and investment market growth. Mr Perry says .It would be great to think that in years to come we have a culture that embraces saving for our retirement, a culture which is characterised by a higher savings rate and a greater sense of financial security, at an individual level, as well as a nation..


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