Lower Tax Advised for Kiwisaver Benefit

November 3, 2008 New Zealand FinanceNew Zealand Taxation  No comments

Kiwisaver fund provider Mercer has warned that at current tax levels the government incentives to join and utilize Kiwisaver would be made null by the taxes imposed on the earnings.

According to Paul Newfield, Mercer’s head of retirement, risk and finance, over a lifetime of saving through Kiwisaver, the Kiwisaver incentives of a $1000 initial government contribution, $1040 yearly contribution and employer contributions would all not be enough to equal out the total taxes that one would face on Kiwisaver.

According to Kiwisaver documentation, currently, if the income of an individual over the last two years combined with their Kiwisaver earnings over the last two years comes to less than $60,000 a year, then they face a tax rate of 19.5%, or 30% if the figure is over $60,000. The Mercer report claims that this will ultimately lead to a loss to investors. Paul Newfield recommends that a new “break even” tax rate be implemented, one where the total tax and benefits even out. He claims this level could be reached at a tax level of 12.5%.

Government and Kiwisaver representatives have yet to comment on the report.