United Future submission on superannuation

United Future finance spokesman, Gordon Copeland, today released his submission to the Periodic Report Group on private saving for superannuation.

The group is established under the Retirement Income Act 1993 every six years to report to the Government on New Zealand's retirement income policies.

The Group will report later this year, with an emphasis on employer superannuation schemes, the impact of taxation on private preparation for retirement and issues faced by women, Maori and Pacific peoples in saving for retirement.

Submission to Periodic Report Group 2003

Private Savings for Retirement through employment based superannuation schemes

1. There is a maxim which applies to public policy "encourage something, and you get more of it, discourage something and you get less of it".

2. In my view, retirement savings in New Zealand, through employment based superannuation funds, are discouraged through a combination of four factors:

a) The T/T/E regime.

b) The taxation of fund earnings (the middle "T") at a flat rate of 33%. I understand that this represents an over taxation, compared to their personal marginal tax rate, for approximately 45% of all current employment based superannuation members.

c) The provision of universal New Zealand superannuation.

d) The establishment of the New Zealand Superannuation Fund.

These factors discourage savings in the following ways:

a) Timing under T/T/E - the tax is at the front end whilst the exemptions are at the tail end. From the point of view of a 30 year old, this combination creates an entirely different perception than would say, exemption or incentives at the front end, with the tax deferred way into the future. (Relates to (a) above).

b) The over taxation involved. (Relates to (b) above).

c) They convey the message (quite unintentionally) "no need to worry, the Government will take care of you in your old age". (Relates to (c) and (d) above). Notwithstanding, I support NZ Superannuation and the NZ Superannuation Fund.

3. I submit that the "discouragement" message could be changed to one of "encouragement" if the following steps were taken:

a) A 33% tax rebate on the first $2000 saved each year through an employment based superannuation fund.

b) The taxation of fund earnings at a rate equal to the member's marginal personal tax rate.

c) Taxation of employers' contributions at 6 cents in the dollar, below the marginal tax rate of the member (the Government have already signalled their intention to address this issue in the near future).

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