Ever felt like you're being taxed twice on your pension? It's a frustrating question that many retirees grapple with, and it's time to shed some light on this perplexing issue. Welcome to No Stupid Questions, a new podcast by RNZ, where Susan Edmunds tackles your burning queries about money and the economy. We're here to unravel the complexities, so send us your written questions or, even better, a voice memo to questions@rnz.co.nz—we'd love to hear from you!
Here’s the burning question: Why do we pay tax on our pension when it seems like we’ve already paid tax on that money during our working years? Isn’t that double taxation? And this is the part most people miss: Pensions aren’t funded from a pool of money you’ve paid into over your lifetime. Instead, they’re part of the government’s general expenditure, paid for by current taxpayers. So, it’s not your past taxes funding your pension—it’s today’s workforce.
But here's where it gets controversial: Should pensions even be taxed at all? Some argue they should be tax-free, while others believe they should be treated like any other income. Here’s the deal: In New Zealand, all income—even government benefits—is subject to tax. When you receive your pension, it’s calculated as a gross payment, and the tax you pay depends on your individual circumstances and current tax rules. For example, if you’re working while claiming NZ Super, your overall income could push you into a higher tax bracket, meaning you pay more tax on your pension. Thought-provoking, right?
Now, let’s dive into some other common questions. Ever wondered how to check your KiwiSaver balance or increase your contributions? It’s simpler than you think! Most KiwiSaver providers offer an online platform, or you can give them a call. If you’re unsure who your provider is, Inland Revenue can help. To boost your contributions, you can adjust your rate through IRD’s myIR system, contact your provider, or notify your employer. While employers typically only match the default contribution rate (currently 3%, rising to 4% by 2028), some are generous enough to match higher amounts. Worth asking, isn’t it?
And this is the part most people miss: There’s no income ceiling for KiwiSaver, but additional income could affect other benefits like the accommodation supplement. For instance, if a family member deposits $1,000 per week into your account, it might not impact your KiwiSaver but could influence your eligibility for other support.
Here’s another curveball: What if you retire abroad, say, on a yacht, with no residence in a country with reciprocal agreements? If you’re overseas for more than six months, you must apply to MSD at least six weeks before leaving to keep your pension. Failure to do so could mean having to repay the amount. The rules vary depending on where you’re moving. Countries like Australia have reciprocal agreements with New Zealand, allowing you to apply for NZ Super while residing there. But if you’re heading to a country without such an agreement, your pension amount will depend on how long you’ve lived in New Zealand between ages 20 and 65. Complicated, right?
Controversial question to leave you with: Should pensions be universally tax-free, or is it fair to tax them like any other income? Let us know your thoughts in the comments—we’d love to hear your perspective!
Don’t forget to sign up for Money with Susan Edmunds, a weekly newsletter packed with insights on how we earn, spend, and invest. Your financial journey starts here!
