Greater encouragement needed for private super: United Future

“There is a maxim of public policy that if the government discourages something it gets less of it, and if it encourages something it gets more of it. Sadly, successive governments over the last 17 years or so have discouraged private superannuation provision and, guess what, we have less of it than was the case in the 1970s and early 1980s.

“The present system provides no tax relief for contributions to super funds, overtaxes the earnings on those funds but exempts withdrawals following retirement. It fails to acknowledge the reality of human motivation. A young person in their late 20s or 30s might contemplate saving for retirement if there was some incentive to do so. Remove that incentive and it doesn’t happen.

“Those realities need to be addressed, and addressed urgently, by the government. Treasury should be asked to run a number of scenarios looking, for example, at the grandfathering of present schemes and the commencement of a new regime based on some tax incentive at the front end (thus appealing to younger people) but taxing part of the income stream during a person’s retirement years. In addition, fund earnings should, commencing immediately, be taxed at the marginal tax rate of the individual fund member rather than at the present flat rate of 33 cents in the dollar.

“The status quo sees approximately 45% of superannuation scheme members overtaxed and that anomaly should be removed. I am disappointed that government haven’t done it already because they have been talking about it now for several years.

“I am also concerned that superannuation savings are disadvantaged compared to investment in residential rental properties because of the anomalies surrounding capital gains tax. I think these distortions would best be addressed by removing capital gains tax on superannuation fund earnings. This would restore a level playing field and be consistent with New Zealand’s aversion to capital gains taxes.

“United Future accepts and endorses the present universal nature of NZ superannuation and the NZ Super Fund. However, it is designed to sustain a barely adequate standard of living for retired people. It needs to be supplemented by specific policies to encourage private provision in addition to NZ Super and the government needs to give a much stronger lead in that regard.”

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