The Organisation for Economic Co-operation and Development has told the New Zealand government it should stop taxing KiwiSaver contributions and investment returns, and instead tax savings at the point they are withdrawn in retirement. According to one of the country’s better known economists, the change could leave a young worker with roughly $90,000 more in today’s dollars by the time they stop working.
The recommendation lands in the OECD’s 2026 Economic Survey of New Zealand, released this month, which lays out a wide list of structural reforms aimed at lifting growth out of its current sluggish patch. The report says New Zealand’s recovery is gradual, with unemployment subdued, and that lifting KiwiSaver contributions and shifting the tax burden away from contributions and returns toward withdrawals are central to deepening capital markets and improving long term saving outcomes.
New Zealand currently runs what tax specialists call a Tax Tax Exempt model on retirement saving, often shortened to TTE. Contributions are paid from after tax income, investment returns inside KiwiSaver are taxed each year, and money taken out at retirement is then free of further tax. According to the OECD, only three OECD countries use this model, with New Zealand sitting alongside Australia and Turkey. Most other rich countries instead use an Exempt Exempt Tax structure, often shortened to EET, where contributions are made from pre tax income, investment earnings compound tax free, and the resulting pot is taxed as income when drawn down later in life.
According to analysis published by RNZ, Simplicity chief economist Shamubeel Eaqub has run the numbers for a 25 year old on average earnings. His calculation suggests the EET model would leave that worker about $90,000 better off in today’s dollars at retirement, compared with the current arrangement. The boost comes from compounding. When investment returns are not clipped by tax each year, the balance grows faster, and several decades of that uninterrupted growth makes a meaningful difference at the end.
The argument for change rests on the maths of compounding rather than on giving people new money up front. Under the OECD’s preferred system the government would still collect tax revenue from KiwiSaver, but the take would be deferred until retirement, which is when most people drop into a lower personal tax bracket. That timing alone is worth something to savers, because money taxed at a lower rate when withdrawn typically leaves a larger after tax balance than the same money taxed at higher rates on the way in and along the way.
Not everyone is convinced the case is settled. The Retirement Commission has previously warned, in commentary on similar proposals, that there is little evidence tax concessions on retirement saving lift the total amount New Zealanders save. The fear is that incentives mainly reward people who would have saved anyway, particularly those on higher incomes, while doing little to bring in households that are currently outside KiwiSaver or barely contributing.
That concern is sharpened by the distribution of KiwiSaver wealth. The OECD points out that higher income earners already hold about half of all KiwiSaver assets, which means any tax concession applied across the scheme will be felt most strongly by those at the top of the income range. Financial Services Council chief executive Kirk Hope, quoted by RNZ, said any change of this size would have to be assessed carefully because it would touch savers, employers, future retirees and the government’s books at the same time. Koura founder Rupert Carlyon framed the proposed regime as similar to the United Kingdom model, where pre tax contributions are matched with taxed withdrawals.
The OECD survey does not stop at retirement saving. It urges the government to push on with energy market reform, deepen the country’s relatively shallow capital markets, revive a public stock listing pipeline that has thinned out in recent years, and develop better small to medium enterprise debt markets so growing firms can borrow on reasonable terms without leaning entirely on the major banks. According to interest.co.nz, the OECD now expects gross domestic product to grow 1.4 percent this year and 2.3 percent in 2027, with inflation forecast at 3.4 percent in 2026 easing back to 2.4 percent the following year, and unemployment staying above 5 percent into late next year.
There are also moving parts already in motion on KiwiSaver, separate from the OECD’s bigger picture recommendation. The default employee and matching employer contribution rate is rising from 3 percent to 4 percent in two stages, with the first lift taking effect from 1 April 2026 and the second on 1 April 2028. Employers will move to a matching 3.5 percent of pay from 1 April 2026. The government co-contribution was reduced from 1 July 2025, dropping to 25 cents per dollar contributed by employees, half of what it used to be. Those changes were settled before the OECD report landed and will roll on regardless of whether the EET recommendation is adopted.
For Wellington, the political question is whether to begin a transition. Moving to an EET system is not just a technical tax change. It would involve transitional rules covering existing balances, decisions about how withdrawals after 65 should be taxed, and a careful look at how the change interacts with the bottom personal tax rates, NZ Super and existing pension arrangements. New Zealand has historically resisted joining the global mainstream on retirement tax structure, partly because TTE feels simple to communicate. The OECD’s argument is that the simplicity comes at a cost, and that cost is being paid in retirement balances that could be larger if returns were not taxed along the way.
Compounding rewards patience. Whether New Zealand’s tax settings should be tilted to deliver more of that reward to KiwiSaver members is now squarely on the policy table.
What do you think? Should New Zealand follow the OECD’s lead and shift KiwiSaver to a UK style model, or are tax concessions on retirement saving a giveaway to higher income earners that produces little extra national saving? Let us know in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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