Tax rates for KiwiSaver investors are too high and need to be lowered, a fund-management industry group says.
The Financial Services Council has labelled the tax burden on KiwiSaver investors "unfair" and suggested cutting current KiwiSaver fund tax rates of between 28 per cent and 10.5 per cent to between 15 per cent and 4.3 per cent.
Most of the cost could be met by ending the annual $521 KiwiSaver member tax credit, which costs about $630 million a year, the council said.
Financial Services Council chief executive Peter Neilson said the proposed changes would mean a person on an average income would have to save $16 a day rather than $27 to achieve a "comfortable" retirement income.
The council said most people would need an income equal to two times NZ Super to be comfortable in retirement.
Under current policy settings this would require most New Zealanders to save more than 10 per cent of their pretax income, "a big ask for many also paying off a student loan and-or trying to buy a home", Neilson said.
"Regardless of whether KiwiSaver is universal [compulsory) or voluntary, the overtaxation of KiwiSaver funds has to be addressed.
"Leaders of all parties should say if they support or oppose introducing fair taxes on savings. Fairer taxes will have a huge impact on the future incomes of New Zealanders when they retire."
A typical person would earn just 10 per cent of their retirement savings from initial contributions and 90 per cent from compound interest on those savings, he said.
"How we tax those compounding returns is therefore crucial in determining how many of us are going to be comfortable in retirement."
New Zealand has the world's "most punitive" tax regime for retirement savings when compared with investments in rental housing. Someone paying 33 per cent income tax would see more than half their KiwiSaver income go, because of the impact of 40 years' taxation, Neilson said.
"If the same person invested in rental property their effective tax rate would be only 7.9 per cent if the property was geared up by 80 per cent," he said.
"If that period of ownership dropped down to only 10 years the rental investor would receive a tax credit . . . effectively a subsidy for investing in rental property. We can't all be rental property investors." Fairfax NZ
- Fairfax Media