Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


NZers being set on road to lower income retirements


7 May 2014

Embargoed until 6am, Thursday 8 May 2014


Most middle income New Zealanders being set on road to lower income retirements

Most middle income New Zealand employees are being sent down a road to a financially uncomfortable retirement, says the Financial Services Council (FSC).

It has this week sent all MPs a specially-commissioned Infometrics report detailing how retirement incomes for employees can be doubled – in ways New Zealanders will support and the country can afford - while leaving the NZ Super pension in place.

Financial Services Council Chief Executive Peter Neilson says his organisation has suggested a package of policies which will achieve this.

MPs have been told that

• unless KiwiSaver fund tax rates are cut and

• default investors are moved from conservative to balanced or growth KiwiSaver funds

most middle income employees will be unable to achieve a comfortable retirement.

This advice is based on a new Infometrics report commissioned by the FSC which has been sent to MPs prior to the Budget and the start of the General Election campaign.

Mr Neilson says the report clearly shows that to fund a comfortable retirement at about 2 times NZ Super alone (currently $282 a week after tax for each of a couple) the most important drivers for KiwiSaver members, after setting the right level of income to be saved are

• choosing the right KiwiSaver fund (conservative, balanced or growth), then the

• tax paid on returns earned on KiwiSaver investments, and lastly the level of fees paid to KiwiSaver providers.

Last year the Government decided not to have default KiwiSavers opt automatically into a balance or growth fund with the option to move later if that was their choice. Default providers now have to advise default KiwiSavers on where best to invest to achieve their desired retirement.

Mr Neilson says New Zealand currently has the most punitive tax regime for retirement saving that we have been able to find in the developed world.

“Someone on the average wage saving over 40 years will lose half of their retirement nest egg to the impact of tax,” he says.

“The international superannuation guru, Ezra, has estimated that if you did not pay tax on your retirement investment fund you would only need to save $1 for each $10 you received in retirement. This means $9 out of the $10 dollars come from the compound returns (the interest on interest) from your initial $1 of savings.

“In New Zealand you have to save $2 to get the same $10 of retirement earnings because our tax regime is cutting your retirement nest egg in half.

Last year the FSC published an earlier Infometrics report http://fsc.org.nz/site/fsc/files/SuperSize%20Conference%202013/Infometrics-Funding%20a%20Comfortable%20Retirement-19September-Final%20copy.pdf that outlined how we could cut the contributions to fund a comfortable retirement by moving default KiwiSavers from conservative to balanced or growth funds for higher earnings and from cutting KiwiSaver fund tax rates. The latest report examines those proposals in greater detail to address concerns that the proposed changes might be unfair to lower income KiwiSavers. That is cutting KiwiSaver fund (PIR) tax rates funded by the removal of the $521 annual Member Tax Credit paid into the accounts of those saving $1042 or more.

The analysis shows that the value of the reduced KiwiSaver tax rates over 40 years far exceeds the value of the $521 tax credit which is worth $28,000 over 40 years.

MPs have been told tax reform could drop contributions for someone on the average wage by $164,000 and the tax change boosts their nest egg by $288,000 over a 40 year working life.

Mr Neilson says the analysis also shows that the effective tax rates with the proposed lower FSC tax rates are not only more progressive than the current ones (the tax rates increase faster as the incomes of the KiwiSavers increase) but that the effective tax rate for the highest income earners (37.1%, balanced fund) are higher than the current highest marginal income tax rate of 33%.

“Middle and lower income New Zealanders deserve the comfortable retirement enjoyed by long serving politicians and public servants. That cannot happen unless the unfair taxation of KiwiSaver funds is addressed,” Mr Neilson says.

“Only politicians can fix that for us.

“Fair tax for KiwiSavers will be an election issue this year. It is one important element to stop us sending most employees on the road to a financially uncomfortable retirement .”

The key information from the new Infometrics report is on pages 4, 5, 7, 10, 12 and 13.

Comparison of Current and Proposed KiwiSaver Fund (PIR) Tax Rates

Income BandsCurrent PIR RatesFSC Proposed PIR Rates*Percentage Reduction
Up to $48,00010.5%4.3%59%
$48,000 to $70,00017.5%8.0%54%
Over $70,00028.0%15.0%46%


* This is one possible PIR tax rate structure that could be funded by removing $521 annual MTC while keeping the $1000 sign up incentive.
KiwiSaver in Conservative to Balanced Scenario E Saving over 40 years 25 to 65

--

Making_KiwiSaver_Fairer_and_Affordable6.5.14.docx
Making_KiwiSaver_Fairer_and_AffordableBackground6.5.14.docx
InfometricsApril_2014Tax_Style_and_ReturnsFinal.pdf

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Scoop Business: RBNZ Keeps OCR At 3.5%, Signals Slower Pace Of Future Hikes

Reserve Bank governor Graeme Wheeler kept the official cash rate at 3.5 percent and signalled he won’t be as aggressive with future rate hikes as previously thought as inflation remains tamer than expected. The kiwi dollar fell to a seven-month low. More>>

ALSO:

Weather: Dry Spells Take Hold In South Island

Many areas in the South Island are tracking towards record dry spells as relatively warm, dry weather that began in mid-August continues... for some South Island places, the current period of fine weather is quite rare. More>>

ALSO:

Scoop Business: Productivity Commission To Look At Housing Land Supply

The Productivity Commission is to expand on its housing affordability report with an investigation into improving land supply and development capacity, particularly in areas with strong population growth. More>>

ALSO:

Forestry: Man Charged After 2013 Death

Levin Police have arrested and charged a man with manslaughter in relation to the death of Lincoln Kidd who was killed during a tree felling operation on 19 December 2013. More>>

ALSO:

Smells Like Justice: Dairy Company Fined Over Odour

Dairy company fined over odour Dairy supply company Open Country Dairy Limited has been convicted and fined more than $35,000 for discharging objectionable odour from its Waharoa factory at the time of last year’s ”spring flush” when milk supply was high. More>>

Scoop Business: Dairy Product Prices Decline To Lowest Since July 2012

Dairy product prices dropped to the lowest level since July 2012 in the latest GlobalDairyTrade auction, led by a slump in rennet casein and butter milk powder. More>>

ALSO:

SOE Results: TVNZ Lifts Annual Profit 25% On Flat Ad Revenue, Quits Igloo

Television New Zealand, the state-owned broadcaster, lifted annual profit 25 percent, ahead of forecast and despite a dip in advertising revenue, while quitting its stake in the pay-TV Igloo joint venture with Sky Network Television. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news