"The Review's finding that there is little evidence that New Zealanders save too little is at odds with the effort that has been put in over a number of years now to encourage people to save for their retirement. Of even more concern is that this finding could contribute to a level of complacency about the need to save for retirement.
"The latest AMP SuperWatch survey shows that, while 92% of New Zealanders recognise the need to save for retirement, less are now saving for their retirement than a year ago (46% compared to 49%) and less see it as a priority for savings (38% compared to 44%). Related to these findings is that more people are expecting the Govt to look after them (23% compared to 20%) in retirement.
"These are worrying trends. Now is not the time to duck the savings issue and that's essentially what the Review has done," says McCulloch.
She said all other OECD countries had addressed retirement income issues through some sort of specific tax regime. Even if the review was not prepared to recommend the use of tax incentives to encourage saving for retirement, it had missed a significant opportunity to at least promote the need for further work in this area.
"New Zealand Superannuation is a safety-net pension. AMP SuperWatch shows that 75% of people think the current levels of New Zealand superannuation are not enough to support them in their retirement.
"This is at odds with the review's finding that most people would not be well served by being induced or compelled to make additional retirement provision at the expense of living standards during their working lives."
Mrs McCulloch says it was good that the review had recognised there were anomalies in the tax treatment of different savings and investment entities, which was an issue raised by AMP in its submission. However, the recommendation to apply the Risk Free Rate of Return Method was not the only possible solution and had some disadvantages.
It was disappointing that the review had
not recommended any changes to the tax system that currently sees
those people earning less than $38,000 continue to have their
retirement savings taxed at a higher rate than their own marginal
tax rate. This could have a significant impact on people's savings.
For example, someone on a low income who saved $80 a month throughout
their 40-year working life would be nearly $20,000 better off
with the lower tax rate , she said.
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