Most super, plans ‘unaffected?’
PA Wellington Most of New Zealand's large company superannuation schemes, would be unaffected by the Budget, said the Government Actuary. Mr Kelvin Prisk. These were the main pen-sion-based schemes, with up to a quarter of their payouts as lump sums, he said. Mr Prisk made it clear that lump sum payments would not be taxable. But Budget changes would affect the large number of mainly small company' superannuation schemes which provided only a lump sum benefit on retirement. Again the payout would not be taxable, he said, although the Budget moved to tax the investment income of these schemes. The schemes would be given the option of winding up without additional tax liability or converting to a pension scheme if they did not meet at least one of the following criteria: • Providing at least 75 per cent of their benefits to pension form. • Having the trustees and contributors as arms-length parties: The term- "'arms-length” has not been precisely de-
fined but Mr Prisk said the provision was to ensure that a person who contributed to a fund did not retain control of the investment. It is to ensure the. spirit of the trustee law is abided with. Mr Prisk was asked to comment on the case of one man who had asked what effect the changes, would have on his lump sum payout when he retired next year. He and his company had been contributing to an insurance policy for more than '2O years and under the terms of the policy he was due to receive about $12,000 as a lump sum on his retirement. Mr Prisk said the changes would have virtually no effect in this case. . But if the same man had another 10 years to go before retirement he would get a slightly lower return because of the Budget's imposition of a 31 per cent tax on the investment of his fund. The chief executive of National Mutual. Mr Gil Hoskins, said that the tax changes would have a serious effect on the cost of running lump sum schemes if benefits were to be kept at the same levels. He said everybody acknowledged that there had
been some tax evasion in the superannuation area, but in the process of stopping it the Government had come down heavily on legitimate lump sum schemes. He estimated that if companies wanted to continue their lump sum schemes they would have to double their contributions. In a typical lump sum scheme the employee contributes 5 per cent of his or her income and the normal company contribution is 8 to 10 per cent. The tax changes mean that to maintain the final payout at the same level companies would have to increase this up to 20 per cent. Under the present system workers with 40 years service could expect to get a lump sum equivalent for four or five years, salary. This had advantages over pension-based schemes. Mr Hoskins said. With a lump sum of that size, employers could invest it, receive a good income off it, and retain the capital. With an equivalent pension scheme they would receive a maximum lump sum payout of maybe one or PA years salary and a pension equal to 50 per cent of salary.
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Press, 9 August 1982, Page 4
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544Most super, plans ‘unaffected?’ Press, 9 August 1982, Page 4
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