The OECD says New Zealand is one of only three countries that tax retirement savings twice and let withdrawals slide tax-free. Its proposed fix is gaining attention from providers — but the detail matters.
New Zealand's retirement savings system handles tax differently from almost every other country in the OECD — and an international review is calling for that to change.
The OECD's latest economic survey for New Zealand identifies a quirk in how KiwiSaver is taxed. Under the current system — known as TTE — contributions are made from income already subject to tax, investment returns are taxed along the way, and withdrawals are tax-free. This is unusual. According to the OECD, only Australia and Turkey operate the same way, and Australia has additional tax incentives on top.
Almost all other OECD countries use a different structure, where contributions and investment returns are exempt from tax, and withdrawals are taxed instead. This is called EET.
The distinction matters because of how compounding works. When investment returns are taxed each year, the effective rate of growth on a portfolio is reduced. Exempting those returns — even if withdrawals are taxed later — allows wealth to accumulate more quickly over a 40-year saving horizon.
What the OECD found
The report states that New Zealand's TTE taxation of retirement savings "significantly suppressed long-term wealth accumulation relative to expenditure tax benchmarks such as EET". It recommends that as part of broader reform to how capital and savings income is taxed, the government should shift the burden from contributions and investment returns towards withdrawals.
The concept is not new. In the United Kingdom, contributions are made from pre-tax income (reducing the tax burden during working years), and withdrawals are taxed at whatever rate applies to retirement income — typically lower than a person's working tax rate, because retirement incomes tend to be lower. The OECD is effectively suggesting New Zealand move in a similar direction.
What it could mean in practice
Shamubeel Eaqub, chief economist at KiwiSaver provider Simplicity, has calculated what the change could mean for an average earner starting to save at age 25: roughly $90,000 more in their account by the time they retire, in today's dollar terms. That figure reflects the compounding advantage of tax-free investment growth.
He frames it as an efficiency question rather than a windfall: "The political fight is about who that $90,000 of efficiency gain accrues to, versus who pays for it now."
The numbers are directional, not guaranteed — the actual outcome would depend on investment returns, fee levels, contribution rates, and what happens to tax rates over four decades.
Who holds the assets
The Retirement Commission — which oversees KiwiSaver — notes that higher-income earners hold 50 percent of all assets in the scheme. Tax concessions that exempt contributions and returns from tax are worth more to people with larger balances and higher marginal tax rates.
The OECD acknowledges this. Its report suggests one approach could be to means test access to New Zealand Superannuation based on KiwiSaver balances for top earners, as a trade-off for the wealthy receiving larger tax exemptions under an EET model.
The Retirement Commission is not convinced the concessions increase overall saving in any case. Its submission notes there is "little evidence that the concessions would increase overall saving and instead were likely to incentivise saving that would have happened anyway".
Industry view
Kirk Hope, chief executive of the Financial Services Council — which represents KiwiSaver providers — said the OECD report was a useful contribution, though the detail matters.
"Reducing the tax people pay while their savings are growing could help build stronger balances over time. But changes could affect savers, employers, future retirees and the Government's books, so they need to be carefully thought through."
What this is not
The OECD report is an recommendation to government, not a committed policy. There is no legislation before Parliament, and the government has not signaled it will act on the proposal. Retirement tax reform has been discussed in various forms for more than a decade without major change.
Any transition would also raise questions about people who have been saving under the assumption of tax-free withdrawals — a point the Retirement Commission raises as a concern about retroactively changing the rules.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.