ACT wants to remove tax from KiwiSaver earnings, in a move it says would add hundreds of thousands of dollars to New Zealanders’ accounts.

Leader David Seymour said while other parties were campaigning on making the scheme compulsory, ACT wanted to leave it optional, but to give investors the full benefit of compounding returns.

National would move towards making the scheme compulsory from 2028, while Labour said it would make employer contributions compulsory.

Seymour said adjusting tax would have a more significant impact.

At the moment, New Zealanders’ retirement savings are invested from taxed income, and earnings are taxed, but the withdrawal is tax-free. 

“Put it this way. Over a 42-year career, a 10 per cent return could double your savings nearly six times, compared with only four times at 7 per cent, leaving you with roughly three times as much at retirement. A 30 per cent tax on a 10 per cent return effectively cuts that return to 7 per cent, showing how dramatically tax can reduce the power of compounding,” Seymour said.

“Every time you get taxed on your earnings you don’t just lose that money, but all the future savings that would be compounded from it.”

He said taking tax off KiwiSaver returns would mean a 20-year-old earning $60,000 would save an extra $209,486 by the time they were 65. A 50-year-old earning $80,00 could have an extra $20,878.

He said ACT would also remove the Government contribution to KiwiSaver accounts.

Financial Services Council chief executive Kirk Hope said it was significant that KiwiSaver had become an election issue. “National, Labour, ACT, New Zealand First and Opportunity have now all put forward ideas to strengthen retirement saving.

“The policies aren’t the same, and we’d expect plenty of debate about the best settings. But there’s increasingly broad agreement on the destination: Kiwis need to be saving and investing more for their future.

“That’s a big shift and a welcome one. For years, meaningful changes to KiwiSaver have often been put in the too-hard basket because of the politics around them. This election, we’re debating how to strengthen KiwiSaver rather than whether we should.

“ACT’s proposal puts another important idea on the table: the effect tax settings can have on long-term compounding and retirement savings.