Wellington, Oct 18 NZPA - AMP is advocating a taxation regime which encourages retirees to manage KiwiSaver so it provides an income stream in retirement.
In a submission to the Savings Working Group, the insurance and fund management giant argues that KiwiSaver is proving an effective scheme to provide a lump sum at retirement, but once eligibility age is attained there is not a strong framework to provide for a retirement income.
AMP advocates an EET taxation regime under which contributions and investment income are not taxed but retirement withdrawals are. Such regimes are common in Europe.
"The number of KiwiSaver accounts that have been opened have greatly exceeded early estimates -- the benefits of contributing are too hard to ignore. However, we submit that the incentives are unbalanced, being completely weighted to contributions, and do not support integrated saving and retirement income phases," AMP said.
"If the present arrangements continue they may contribute to significant consumption expenditure of retirement lump sums in the future. KiwiSaver incentives should be directed to deferring tax and to encouraging retirement income," AMP said.
Deferring tax until retirement income is received would be a continuing encouragement to KiwiSaver savings and provide an inbuilt incentive to deferring spending of savings in retirement as large withdrawals would attract high income tax.
It would broaden the tax base at the point where the elderly are making the greatest demands on public services and provide a good reason to transfer Australian superannuation guaranteed contributions to New Zealand.
"While this proposal may appear a radical change of direction and offend the policy stability criterion, given the short history of KiwiSaver and the level of government support applied to contributions up-front, such a change is justifiable given the benefits to a coherent overall retirement income framework," AMP said.
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