The government has proposed it will review the tax treatment of annuities in response to the Capital Markets Development (CMD) Taskforce recommendation and the financial adviser industry says the review is a must because of KiwiSaver.
The CMD Taskforce recommended that the government should support the development of the annuities market and Taskforce chairman Rob Cameron says there needs to be annuities products available for mature investors.
Investment Savings and Insurance Association chief executive Vance Arkinstall says he feels very strongly about this recommendation.
“The taxation of annuities is totally out of date and it overtaxes most people who would be purchasing an annuity.”
He says as New Zealand develops a saving ethic with KiwiSaver leading the way, New Zealand will need to provide the ability for individuals to draw down their savings in income streams which annuities provide.
“We’re very supportive of developing an annuities market because it is totally consistent and goes hand in hand with KiwiSaver.”
Institute of Financial Advisers president Lyn McMorran agrees saying KiwiSaver makes the annuities market a complete necessity as people will start coming out of the scheme with lump sums of money.
“Annuities aren’t offered in New Zealand because the tax structure is not condusive to offer them, therefore there is no demand and no supply.”
She says it is a chicken and the egg scenario, “We need to sort out the tax issue first, and that will create demand which will in turn create supply.”
The government says after the tax treatment has been considered as part of the Government’s tax policy work programme, a timetable will be considered for changes, if any are required.