Thousands of taxpayers sacrifice more than salary to Government

Up to 80,000 taxpayers may be gifting the Government thousands of dollars because they do not know how to make the most of a new rule on superannuation savings, says Linda McCulloch, Manager Corporate Markets for AMP Financial Services.

In April 2000 the Government introduced a new top tax rate of 39% for annual income over $60,000. Meanwhile, the Specified Superannuation Contribution Withholding Tax – SSCWT – applicable to employer contributions made to registered superannuation schemes, remains at a flat rate of 33%.

"People earning over $60,000 a year could be channelling money into retirement savings and gain a 6% tax advantage," Linda McCulloch said in a speech to an IIR Remuneration, Pay & Incentives conference in Wellington today.

AMP provides the largest employer sponsored superannuation Master Trust in New Zealand, with more than 800 companies and 15,000 members.

"We’ve received numerous requests from employers and employees, asking how they can best utilise this opportunity. They’re asking because the Government has not spelled out the changes and benefits to those New Zealanders who can most afford to save," she says.

For example, an employee on $75,000 elects to sacrifice 10% of their salary and have it deposited into a superannuation scheme by their employer.

"This will generate $667.50 per annum more in savings than if they had deposited it themselves. Not a large amount, but compounded over a 10 year period and attracting additional investment earnings – also taxed at 33% instead of 39% - it creates additional savings of $8,605.50.*

"The benefits are clear; pay less tax, increase retirement savings and painless saving all through employers.

"While 80,000 taxpayers have this opportunity and incentive to save more, 1,058,600 taxpayers in other tax brackets do not currently receive the same equity of opportunity as those earning over $60,000," she says.

The current provision does seem to be elitist, says Linda McCulloch but AMP is encouraged at the Government’s interest in equity for all taxpayers.

"Our own research shows that 92% of New Zealanders expect to take some responsibility to provide for themselves in retirement and 74% believe they have the greatest responsibility to provide for themselves.

"The benefits are obvious and the will is there. The Government just needs to provide the same opportunities across all tax brackets, for everyone," says Linda McCulloch.