The move arose because life policies are currently taxed as if they are savings products, when the change in the industry since the early 1990s means many are term life products with no savings component.
The proposals propose treating life policies in much the same way as general insurance policies, and along similar lines to the existing Australian rules.
If that happens, it will hit the industry hard, says Investment Savings and Insurance Association chief executive Vance Arkinstall.
“The industry has perhaps underestimated the importance of this,” he says.
“We need to resist this. We’re a country that is underinsured, and the surveys show that, and increasing the tax is only going to increase e premiums on risk products and making them more unaffordable. That’s a big backward step.
“And at the same time we are trying, with KiwiSaver and so on, to encourage people to make greater preparation for their own well being.
“The timing of any move to increase tax on risk insurance really is quite poor.”
The discussion document also has minimal guidance for how the existing policies could be migrating to the new rules. The paper asks for feedback on the issue, but does not propose any methodology or time frame for such a transition, or how the tax rules in the new “PIE” regime for KiwiSaver “That’s a bit strange. Allowing the PIE regime to be accessed by existing life insurance savings products was the whole starting point of this.”
One other aspect set to one side by the paper – and one which the industry had hoped for progress on - is the rules regarding annuities.
The New Zealand annuities market is moribund, and one of the reasons is that annuities are, in effect, taxed more highly than other savings products. Annuities have, internationally, seen a surge in interest over the past two years.
However the discussion document says the issue of annuities "presents unique problems, and the methodology discussed in this paper does not at this stage extend to these products.”
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