Cost of making life policies PIE compliant

Changes to how life insurers are taxed will be introduced to Parliament later this month. Figures included in the recent Budget show how much the tax man will be giving back by making life policies subject to the PIE (portfolio investment entity) regime – and at the same time how much will be clawed back through taxation of the risk business.

Tuesday, June 3rd 2008, 10:16PM

by Rob Hosking

It is a net win for the tax man, although not immediately.

Because the PIE rules will take effect early on, they will cost the government roughly $21 million in the first year, rising to $22 million the following year and $25 million the next – a calculation officials say is based on the size of the market and how the market is expected to perform over that time period.

However at the same time the income from taxation of risk products will, by the third year, reach around $35 million, annually, more than replacing the revenue forgone.

The tax changes will be introduced as part of the annual omnibus tax bill.

Insurance Savings and Investment Association chief executive Vance Arkinstall says the changes have been broadly welcomed by the industry.

One of the issues has been the "grandparenting" of existing policies: another was the timing of implementation.

Although the shape of the bill is yet to be known, Arkinstall says the consultation on these issues has been positive.

"We did put pressure on for annuities to be part of this review, but we haven't been so successful there," he says.

Annuities were originally included as part of the review but officials decided it raised other issues and would need to be dealt with separately.

"We think that's a shortcoming. We've been though the whole upheaval around the PIE tax regime, and the implementation of KiwiSaver, and the concern is that there won't be the political will for the next step – to change the way annuities are taxed.

"KiwiSaver means people are going to have a lump sum when they are 65 and many would be attracted to annuities but will not want to buy them so long as there is unfavourable tax treatment."

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

« Income protection insurance trapsTower slashes premiums »

Special Offers

Commenting is closed

© Copyright 1997-2020 Tarawera Publishing Ltd. All Rights Reserved