ACT Wants to Scrap Tax on KiwiSaver Returns: What It Would Mean for You

Yesterday ACT put a KiwiSaver policy on the table, and it is a good one to dig into. I wrote about every other party's plans a few weeks ago in Every Party's KiwiSaver Policy for the 2026 Election, Compared. In that article ACT was the one party with no policy of its own, only a position against compulsion. That has now changed, so this is the missing row.

One thing before we start. I am a KiwiSaver adviser, not a political commentator. I will tell you what the policy does to your balance and where I think it is strong or weak. How you vote is yours to decide.

What ACT is actually proposing

There are two moving parts.

• No tax on earnings. The tax on investment earnings inside KiwiSaver would be removed. Today KiwiSaver funds pay tax on their earnings through the PIE (portfolio investor entity) rules, at a rate between 10.5% and 28% depending on your income. ACT would take that to zero. The same treatment would apply to other superannuation accounts outside KiwiSaver.
• No more Government contribution for some members. The Government currently adds 25 cents for every dollar you put in, up to $260.72 a year, and you reach the maximum by contributing $1,042.86 across the year. ACT would end that for members who receive employer contributions, and says the tax relief inside the account is substantially greater.

David Seymour put it this way: "If you save for the future we will let you get the full benefit of compounding returns instead of taxing you every step of the way." ACT's own example is a 20-year-old builder on $60,000, who it says would have an extra $209,486 by 65. A 50-year-old office manager on $80,000 would gain an extra $20,878.

Those are ACT's figures and I have not seen the full assumptions behind them, so treat them as a best case from the party selling the policy. The direction is right, though. The younger you are, the more compounding does for you, and the more a tax drag removed in your twenties is worth by your sixties.

How this compares with Australian super

The obvious benchmark is Australia, because most of the parties are already aiming at its 12% contribution rate. Tax is the part of the Australian system that gets mentioned less. Here is how the two look side by side.

Scroll the table sideways to see every column.

Two things stand out to me.

First, Australia is not tax-free. You will hear people say that in Australia you contribute to super and pay no tax on it. That is not accurate. Contributions are taxed at 15% on the way in, and earnings are taxed at up to 15% while you build the balance. What Australia does is cap the rate low and then remove tax altogether in the pension phase. On earnings during the saving years, ACT's proposal would actually go further than Australia does.

Second, the two systems are built differently. Australia taxes the contributions at a flat 15%, but the contributions are far larger, at 12% from the employer alone. New Zealand taxes less on the way in and more on the earnings, and tops up the account with a small flat government contribution. ACT would swap that small top-up for a bigger tax concession on earnings. That is a more Australian-looking idea in spirit (use the tax system, not a cheque from the Government) but with a lighter touch on tax than Australia applies.

If you want the broader picture of the two systems, I covered it in Australia vs NZ: the pension, superannuation and KiwiSaver.

How ACT would pay for it

This is where I want to be careful, because the headline answer is "by removing the Government contribution" and that is only half true.

The costings published with the announcement look like this:

• Removing tax on KiwiSaver earnings: about $4.08 billion (2027 to 2031)
• Removing tax on other superannuation: about $0.90 billion
• Ending the Government contribution: a saving of about $2.59 billion
• Net cost: about $2.4 billion

The gross cost is about $5.0 billion, and ending the contribution covers a little over half of it. So the $260.72 is the largest single funding source, but it is not the whole answer. ACT says the rest will be explained in its Alternative Budget, and describes the policy as a revenue reduction of about $1 billion a year. I have not been able to reconcile that headline figure with the published costings, so I would wait for the Alternative Budget before leaning on any of these numbers.

It is also worth being clear about who loses the contribution. As reported, it ends for members who receive employer contributions. The reporting I have seen does not make clear how that treats the self-employed and others who get no employer contribution, so I would treat that as an open question.

The catch: who wins and who loses

This is the part most of the coverage skips, and it is where an adviser earns a living. The Government contribution is a flat amount: up to $260.72 a year, whether your balance is $2,000 or $200,000. Tax relief on earnings is the opposite. It scales with your balance, so it is tiny when you start and enormous when you finish.

Here is the break-even in plain arithmetic. Assume a 7% return before tax and that you currently get the full $260.72. The balance at which the tax you save equals the contribution you lose is:

Scroll the table sideways to see every column.

Below those balances, someone who gets the full contribution would be a bit worse off each year under ACT's swap. Above them, they would be better off, and the gap widens as the balance grows. A 20-year-old builder with a balance of a few thousand dollars is in the first group for the early years and then comes out well ahead as compounding does its work, which is exactly the story ACT is telling. Someone in their early thirties with a small balance and a low tax rate has a more mixed picture for a while.

That does not make the policy a bad one. It means the winners and losers are separated by age and balance rather than by income, and anyone modelling their own position should look at how long it takes to cross over. Over a working lifetime, I would expect most people with decades ahead of them to come out in front. I would still want to see ACT's modelling before saying so with confidence.

Why I like where they are going

I like this for three reasons.

It rewards the behaviour we actually want. Most of the other policies are about how much goes in, through compulsory rates and employer minimums. This one is about what happens to your money once it is in there. Taxing investment earnings every year is a drag on compounding, and compounding is the whole engine of long-term saving. Take a drag off, and every dollar works harder for longer.

It does not rely on compulsion. National wants to compel you, Labour wants to compel your employer, and NZ First wants both. ACT's answer is to make saving more attractive rather than mandatory. You can disagree on whether that is enough, but it is a coherent alternative, and the experts have been asking for exactly this. Bernard Hickey, for one, told 1News that compulsion needs an incentive alongside it.

It brings tax into the conversation. Until now the debate has been almost entirely about contribution rates. The tax treatment of KiwiSaver is just as important, and it is the main place Australia is clearly ahead of us.

My reservations are the ones above: the cost, the funding that is still to come, and the people with small balances who give up a cheque and wait years for the benefit to arrive. These are things I would want answered, not reasons to dismiss it.

Why ACT needed a KiwiSaver policy

I also think ACT had to put something forward. KiwiSaver is shaping up as one of the big issues of this election. National, Labour, NZ First and TOP all have a position, and the people I sit down with every week are asking about it. A party that arrived at the campaign with only an objection to compulsion would have looked like it had nothing to say on a topic that touches nearly every working New Zealander.

What ACT has delivered is different from every other party's policy, which is exactly what makes the field interesting. Four of the parties are arguing about how much to put in. ACT is arguing about how much to leave in. Both of those matter, and voters now have a real choice of ideas, not just a choice of numbers.

What this means for you

1. Nothing changes today. This is an election promise, the vote is on 7 November, and any legislation would take months after that. Do not restructure anything on the strength of an announcement.
2. Know your own break-even. If you have a small balance, a low tax rate and you receive the full Government contribution, your short-term position under this policy is different from someone with a large balance. Work out which group you are in.
3. Check your PIR. Your prescribed investor rate decides how much tax your fund takes from your returns. The wrong one costs you money today, whatever happens at the election. Get it right on your provider's website.
4. Do not stop contributing to chase a policy. The Government contribution is still available now. Making sure you get the full $260.72 this year is worth more than speculating about a change that may never be passed.

My honest take

Policy is the part of KiwiSaver you control least. Your fund type, provider and contribution rate are the parts you control, and for most people getting those right will move the final number more than the difference between any two election policies. A policy debate is about 2032. Your fund choice is about this afternoon.

That said, I am pleased to see tax on the table. If you want a second set of eyes on your own position, sessions with me are free and there is no obligation to act on anything. If you do implement a recommendation, how I am paid depends on the provider, and that is all set out in the disclosure statement.

Simple Steps. Solid Results.

Sources and further reading

Campaign announcements get revised, and a party's own material always beats my summary of it. These are the places to check:

• interest.co.nz - ACT pledges to remove tax on KiwiSaver earnings and end Government contributions - the costings, the $1,042.86 contribution threshold and the worked examples.
• NZ Herald - Act announces multibillion-dollar KiwiSaver tax cut, to remove Government contribution - the four-year cost and the removal of the contribution for members who receive employer contributions.
• 1News - ACT vows to scrap tax on KiwiSaver earnings, end Govt contributions - David Seymour's comments on compounding.
• 1News - Is this the KiwiSaver election? - expert views on tax breaks and compulsion.
• SuperGuide - key superannuation rates and thresholds for 2026-27 - the 15% tax on concessional contributions, the earnings tax rate and the Superannuation Guarantee. Check the Australian Taxation Office for the official position.
• ACT New Zealand - the party's own material always beats my summary of it.
• Inland Revenue - KiwiSaver - the rules that apply today, including the Government contribution.
• Model your own numbers with my free KiwiSaver calculator.