KiwiSaver plan expensive and unfair, experts argue

The Tax Working Group’s proposal to further subsidise KiwiSaver has been attacked by two well-known pension experts who say it is not clear the scheme has encouraged people to save more.

Accountant Michael Chamberlain and Michael Littlewood – a former co-director of Auckland University’s retirement policy and research centre – made what they described as a ‘‘scathing submission’’ on the working group’s pension plans.

Those plans involve recommending an extra $215 million a year in tax concessions aimed at lower-paid KiwiSaver members.

Littlewood said that would increase taxpayer subsidies for KiwiSaver savings plans to a little over $1 billion a year.

The Tax Working Group (TWG) was set up by the Government under the chairmanship of Sir Michael Cullen to recommend tax changes that could take effect after the next election.

Littlewood said the TWG hadn’t asked whether KiwiSaver was working, and in particular whether there was evidence KiwiSaver had encouraged New Zealanders to save more since it was created in 2007.

International evidence did not support the case for tax-based subsidies for retirement saving, he said.

‘‘They are very expensive, distortionary, inequitable, regressive and demand high, growing regulatory walls around affected assets to ensure the incentives are not ‘misused’. But worst of all, tax incentives seem not to work to raise overall savings. That’s also likely to be the case for KiwiSaver, but we need to find out.’’

The tax system should not ‘‘point’’ people into any particular way of saving and KiwiSaver should not have a tax advantage over alternatives such as workplace savings schemes, he said.

The TWG’s interim report published in September said New Zealand offered ‘‘limited concessions for retirement saving’’ when compared with other countries.