KEY POINTS:
A retirement policy expert says a call to lower the tax on KiwiSaver investment returns so that it equals the incentives is too simplistic.
Michael Littlewood, co-director of the Retirement Policy and Research Centre, said an analysis by consultant Mercer failed to take into account the benefits of being able to save more without dipping further into employee pay and the negative side of the cost of funding KiwiSaver.
Mercer, which also runs KiwiSaver funds, has suggested a "break-even" tax level of around 12 per cent be introduced to the returns on KiwiSaver because under the current regime investors will pay more tax on investment earnings over their life than the sum of the incentives received.
But Littlewood said Mercer's suggestion implied the Government was profiteering from KiwiSaver when in fact it was costing taxpayers a lot of money.
"The analysis is regrettably simplistic," he said. "The Government will soon be spending between $2 billion and $3 billion a year on KiwiSaver."
Increasing that to make KiwiSaver even more generous should not be on the agenda."
Littlewood said tax incentives for retirement savings were regressive, expensive, complex and distortionary and some international evidence suggested they did not raise the level of saving.
"Increasing the tax advantages for saving will probably make things worse."
But Mercer retirement, risk and finance head Paul Newfield said his call was aimed at improving the system to help New Zealanders not only save for retirement but also how to manage their retirement savings once they exit the workforce.
"It is not about whether it is simply a good idea to increase or decrease incentives.
"KiwiSaver is an excellent start as a policy framework to build a retirement savings culture in New Zealand. However, enforcing a tax rate on investment earnings that will exceed the sum of the $1000 kickstart, the Government's administration fee subsidies, member tax credits, and employer tax credits, is not the best model to support New Zealanders to save for retirement and manage their capital in retirement."
