21 Apr 2014

Tax on retirement savings 'punitive'

4:45 pm on 21 April 2014

The Financial Services Council said New Zealand has the most hostile environment worldwide for retirement savings and tax rates on KiwiSaver funds should be cut.

The council, which represents KiwiSaver providers as well as life and income insurers, said only eight percent of New Zealanders believe they will be able to live comfortably on superannuation.

As at 1 April 2014, New Zealand superannuation is $282 after tax per week for a married person or partner in a civil union, and $366 a week for a single person living alone.

Council chief executive Peter Neilson said if somebody on the average wage saved over 40 years, tax would take 54 percent of the value of the money they had invested.

"What it means is for somebody on the average wage, you'd have to be saving $27 a day to get enough into your nest-egg in order to be able to give you a comfortable retirement - about two times New Zealand super. Not a luxurious retirement, but basically a little bit more comfortable than living on New Zealand super alone."

Mr Neilson said if the KiwiSaver subsidy of $521 was used to mitigate taxes on super, it would greatly boost KiwiSaver returns.

New Zealand now has the world's most punitive tax regime for retirement savings compared with tax on investment in rental housing, he said.