How much capital do I need to retire comfortably on ?

[Aaron]

KiwiSaver always had a problem from the outset through its discouraging contributions by taxing them and taxing returns in the scheme.

If the accumulation of the KiwiSaver fund were tax-free, and the taxation had been levied on eventual withdrawals instead, it would also have been more palatable to make the state pension means tested, I think.

The income you earn (e.g.wages) is taxed, contributions into Kiwisaver are not taxed(an employer contribution is). The returns the fund generates is taxed but drawdowns of your Kiwisaver are not.

The 28% top rate on PIE investments was to encourage wealthier people to save for their own retirement.

I think kiwisaver could be considered a weak attempt to "fill the bathtub" as he says in the article and might be a small step to switching to a save as you go scheme from the current pay as you go model.

Here is his conclusion.

It might be helpful to finish with an analogy. At the moment it is as if young Kiwis are being taken out to dinner by their parents, told what to eat, and left to pay for most of the meals. Perhaps it is time for change. Young Kiwis should get to choose what they want from the menu and the family should discuss whether there is a better way to split the bill. The answers to such a conversation may surprise us all.

He also notes.

If these discussions are not held now, and current pension entitlements maintained, young people will face higher and higher taxes. Young people might choose to pay higher taxes in the future – or they could choose to reduce the pensions older people receive, or leave to countries where the balance between taxes paid and benefits received is more favourable. None of these options sounds particularly appealing.

[Bjauck]

QUOTE=Aaron The income you earn (e.g.wages) is taxed, contributions into Kiwisaver are not taxed(an employer contribution is). The returns the fund generates is taxed but drawdowns of your Kiwisaver are not. Contributions are out of your taxed income. So they are taxed initially (Unlike with schemes overseas - Australia, UK for example, where the contributions are rebated.) However you are right that they are not taxed a second time!

It is a worse outcome for the taxpayer to pay tax initially, when they are earning salaries and have a high marginal tax rate. That means there is in effect less to invest, and in NZ of course you pay pie tax each year on your KiwiSaver fund.

In the UK and Aus, the contributions are gross, and no tax each year is paid on the investment return. When drawdowns are received in retirement, that is when tax is paid. When you are likely not to be in peak earning income from a job, and your marginal tax rate is likely to be lower. The NZ scheme is much less appealing to a taxpayer from a taxation point of view, especially when a taxpayer is younger.

The 28% top rate on PIE investments was to encourage wealthier people to save for their own retirement. A reduction true. However not as good as leveraged tax-free capital gains from NZ housing investments? Overseas schemes rebate pension fund income tax completely (up to a generous upper limit I think)

I think kiwisaver could be considered a weak attempt to "fill the bathtub" as he says in the article and might be a small step to switching to a save as you go scheme from the current pay as you go model. Very weak - apart from encouraging a small savings fund - the annual minimum to get the annual $521 credit.

Here is his conclusion.

It might be helpful to finish with an analogy. At the moment it is as if young Kiwis are being taken out to dinner by their parents, told what to eat, and left to pay for most of the meals. Perhaps it is time for change. Young Kiwis should get to choose what they want from the menu and the family should discuss whether there is a better way to split the bill. The answers to such a conversation may surprise us all.

He also notes.

If these discussions are not held now, and current pension entitlements maintained, young people will face higher and higher taxes. Young people might choose to pay higher taxes in the future – or they could choose to reduce the pensions older people receive, or leave to countries where the balance between taxes paid and benefits received is more favourable. None of these options sounds particularly appealing