Make tax an election issue: FSC

In comments prepared for the Retirement Policy Research Centre’s forum Retirement Income Policy: the future is now, FSC chief executive Peter Neilson said: “Only 8% of New Zealanders think they will be comfortable in retirement on the $282 a week after tax being paid by NZ Super. Most people will need two times NZ Super to be comfortable in retirement. Saving to fund a second pension on current policy settings requires most New Zealanders to save more than 10% of their pre-tax income, a big ask for many also paying off a student loan and/or trying to buy a home."

He said: “For a typical person saving for retirement, just 10% of their retirement earnings comes from the initial contributions and a massive 90% from compound returns - the interest earned on interest on those initial savings. How we tax those compounding returns is therefore crucial in determining how many of us are going to be comfortable in retirement."

Neilson said New Zealand now has the world’s “most punitive” tax regime for retirement savings when compared with investments in rental housing. “

Someone paying 33% income tax will see over half of their KiwiSaver income (54.7%) go, due to the impact of taxation over 40 years. “If the same person invested in rental property their effective tax rate would be only 7.9% if the property was geared up by 80%. If that period of ownership dropped down to only 10 years the rental investor would receive a tax credit, a payment from the IRD – effectively a subsidy for investing in rental property. We can’t all be rental property investors,” Neilson said.