The Financial Services Council has begun the search for a magic number - the level the tax rate on KiwiSaver would have to drop to, to create a level playing field with investment property.
The lobby group, which represents life insurers and fund managers, has been most vocal in recent years advocating for the age of eligibility for NZ Super to be raised from 65 in a bid to cut the future cost to our ageing society.
But the FSC's chief executive, Peter Neilson, a former Labour cabinet minister, believes there is nothing more it can do to influence the debate on lifting the eligibility age as the public now appears to accept it is inevitable, and that it is now up to the politicians.
Instead, the FSC has embarked on a project to identify the tax rates KiwiSaver funds should be paying to compete with debt-funded residential property investment.
Along with compulsion to save - which has its opponents - reducing the real effective tax rates on investments could spark a savings revolution, Neilson said.
Calculations by Treasury in 2010 showed the disparity in real effective tax rates for different forms of investing and debt-funded property was "tax preferred".
"In a PIE/KiwiSaver fund, the real effective tax rate is around 50 per cent," Neilson said.
By contrast, with a 33 per cent marginal tax rate, a taxpayer's effective tax rate on rental housing is around the 20 per cent mark. "That's what we are working on. We are looking for the right tax rates that would offset the advantages elsewhere," Neilson said. Research showed that long term, 90 per cent of retirement savings were derived from income on the 10 per cent of capital contributions made by the saver, he said.
So reducing tax rates on savings - something the Savings Working Group supported - offered big potential gains, though this would require politicians to accept it would be a wise use of tax revenue. The FSC hopes to be able to present its findings at a superannuation conference it is planning for late this year.
There's another area of work it is embarking on: how the low-paid and women can be given a fair deal should KiwiSaver be made compulsory, something the FSC's members would like to see.
Neilson said a barrier to the acceptability of compulsory saving into KiwiSaver, and the gradual lifting of the amount people save, may be politically acceptable only should some in society be exempted.
It may be that women on maternity leave need to have KiwiSaver payments made for them, perhaps at the minimum wage.
Neilson denies the FSC's lobbying positions are self-interested, designed to boost the incomes of the FSC's fund manager and insurer members.
He said there was no scope to cut the spending power of NZ Super because it is only just enough to keep people from poverty. The FSC was behind making NZ Super sustainable, but to be comfortable, a retired person really needs twice the income NZ Super provides.
Neilson said statistics indicating many Aucklanders would not end up owning their own home in retirement meant these people would need extra savings or find it very hard to get by.
CLOSER TIES, NOT MERGERS
The Financial Services Council's dreams of swallowing the three other major financial services industry bodies are over.
The grandly-renamed Financial Services Council (FSC) is the reincarnation of the old and largely ineffectual Investment Savings and Insurance Association (ISI).
In late 2011, its board planned for it to become much more. Driven by members who sold multiple products and found themselves paying to be members of multiple industry bodies, a plan was hatched for the ISI to absorb the others.
It was planned the new FSC would provide one voice for financial services firms and would have a budget big enough to carry out serious research and drive the political debate, for the benefit of New Zealand or the financial services community, depending on whom you asked.
Chief among the companies calling for change was Tower, which sold general insurance (requiring membership of the Insurance Council of New Zealand), health insurance (the Health Funds Association), and sold investments (the ISI).
But its issues ended after the sell-off of both its health insurance and its investment businesses.
The other bodies on the target list ? the Insurance Council, Bankers Association, Health Funds Association and the Financial Services Federation ? have all politely turned down the opportunity to merge into the FSC.
FSC chief executive Peter Neilson admitted he no longer expected to see legal mergers anytime soon, though closer ties were being fostered.
There are now regular quarterly meetings of the CEOs of the financial services industry bodies to develop issues of joint interest, he said.
The bodies had also devised a memorandum of understanding on how they will co-operate to develop more cohesion. That leaves the door open for mergers in the long run.
- ? Fairfax NZ News
Source: http://www.stuff.co.nz/business/money/8604889/Finance-lobby-seeks-magic-rate
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