The Opportunity Party wants to create 'Kiwisaver 2.0', with a 12% tax-free combined employee and employer contribution, and no first home withdrawals

By Anna Whyte and Mandy Te

The Opportunity Party is proposing to create an entirely new compulsory retirement savings scheme, KiwiSaver 2.0, with combined employer/employee contributions rising to 12% that are exempt from income tax.

KiwiSaver 2.0 would be entirely separate from the current KiwiSaver scheme, and savings would not be able to be withdrawn for first-home purchases or financial hardship.

Opportunity leader Qiulae Wong told interest.co.nz the reason they're proposing a new scheme is because the current rules around KiwiSaver, such as the ability to withdraw to buy a first home, means it's "unfair to necessarily change the rules on that because people have invested in that ... scheme in that way, and funds have been set up for that purpose."

"That's why we propose creating it as a new scheme."

Progressively, both employer and employee contributions would increase to 6% each, phased in over eight years. (Both are currently 3.5% and set to rise to 4% in April 2028). People could still remain in the original KiwiSaver as a supplementary saving scheme, and people would also have the ability to transition their funds across to the new account that Opportunity is proposing. 

They also want the 12% contributions to be exempt from income tax. The tax would be progressively reduced, with all fund income tax-exempt after 20 years.

Currently, people pay tax on the money their KiwiSaver investments earn but they do not pay tax on any money withdrawn from their account. Employers pay tax on all employer contributions to KiwiSaver schemes and complying funds - this is called the employer superannuation contribution tax (ESCT), while employees pay income tax prior to their contribution into their KiwiSaver. 

"We propose making it tax free on the contribution side when you're putting it [money] in, because then you get the gains of that compound interest on the money that you put in, versus what it is now - you get taxed on it," Wong said. 

Opportunity want to progressively move to an Exempt-Exempt-Taxed (EET) model where contributions and gains are untaxed and withdrawals are taxed.

Wong was not able to say how much making contributions tax exempt was estimated to cost the Government. A spokesperson said they did not have full workings as it would need to be introduced progressively over time.  

"Other schemes around the world have got tax free contributions to superannuation. It gives so many more benefits to individuals that it just makes sense, and we have to find a way to make it work."

Opportunity Party leader Qiulae Wong. Image source: Mandy Te

The party's policy document states the gains from KiwiSaver 2.0 would still be taxed.

"It means that when someone puts $100 into their KiwiSaver it won’t be taxed down to around $70. They can then earn investment returns on the full $100 and only be taxed on those gains."

"The tax exemptions will be funded by the National Superannuation Fund. In the long run, increased returns on a bigger pool of savings will more than cover that initial cost to government," the document states. 

Wong also wants KiwiSaver 2.0 to be more rigid, doing away with aspects such as withdrawals for first home deposits or financial hardship. 

"Australia doesn't have that allowance for their superannuation scheme, and people are still able to buy a first home there," she said. 

"It's important to also recognise that this is part of the tax reset package where people would have a citizen's income [Opportunity's proposed universal weekly payment scheme] as well, so that gives them more money in their pocket to be able to contribute to their KiwiSaver, but also be able to put money away for a deposit that's separate from their KiwiSaver," she said.

"It is challenging on current wages and current cost of living to put compulsory KiwiSaver in without any other changes, we would still like to see a shift to compulsory KiwiSaver, regardless. But admittedly, it is a lot harder if we're not going to change anything else in our economic settings to make that easier for particular lower income people."

The party does say it will "enable bank loans over balances to support first home buyers to access lending."

Labour announced its KiwiSaver policy over the weekend, promising to make employer contributions to KiwiSaver compulsory and rising to 6%, extend employer contributions to workers over 65, make the default employee contribution rate at 4%, as well as removing the minimum contribution rate.

They also want a ban on total remuneration contracts that factor in employer KiwiSaver contributions, and provide a KiwiSaver contribution to those on paid parental leave.

New Zealand First announced its KiwiSaver election policy last year, proposing to increase employee and employer contributions to 10% and making KiwiSaver compulsory. At the time, NZ First leader Winston Peters said KiwiSavers and employers would receive tax cuts to cover the increases.

Peters also promised to make KiwiSaver compulsory from birth, with an automatic Crown contribution of $1000.

National leader Christopher Luxon has announced that if re-elected in November's election, National would make KiwiSaver or an equivalent scheme compulsory for workers, automatically enrol every baby born in New Zealand along with a $1500 Baby Boost payment, and make a contribution into a parent’s KiwiSaver while they’re on paid parental leave.

That followed a promise to increase contribution rates for employers and employees from April 2029, rising by 0.5% per year until April 2032 - to a 6% contribution rate for employers and employees each.