Michael Cullen's bob each way on KiwiSaver

Sir Michael Cullen's Tax Working Group has called for KiwiSaver to be tweaked. Photo / File

Sir Michael Cullen's Tax Working Group has called for KiwiSaver to be tweaked to increase the incentives for low income earners to save, reduce tax and provide a boost to those on paid parental leave.

But a retirement savings expert has warned that the proposed changes will fail to help some of those who need it most and the true benefit is hard to gauge as people will also have to pay tax on gains on their investments.

Cullen, who helped set up KiwiSaver in 2006, has recommended the tax on the employer contributions be refunded for those who earn under $48k with a graduated refund for those who earn between $48k and $70k.

Those who earn over $70k would get no benefit.

He also wants the government to increase the annual member tax credit from 50c for every dollar a member puts into KiwiSaver up to a maximum of $1042 increased to 75c in the dollar.

That would mean members could get up to $781.5 a year from the government and Cullen wants it to be paid to all those who go on parental leave regardless of whether they put money in themselves.

The group has also recommended the lower tax rates for KiwiSaver funds be reduced by five percentage points each for the lower rates which are currently 10.5 per cent and 17.5 per cent.

Some of the recommendations reverse reductions of KiwiSaver incentives brought in under the National government which cut the member tax credit in half and introduced the tax on the employer contribution.

David Boyle, head of sales and marketing at Mint Asset Management, who previously worked at the Commission for Financial Capability said the recommendations had a touch of "back to the future" about them.

He warned that the a lot of New Zealanders who now worked on a contract or casual basis would miss out on the benefit of reducing the tax on the employer contribution and it added another layer of complexity to KiwiSaver.

"A lot of New Zealanders won't benefit from this."

He said many of those in the manufacturing and construction industries were contractors.

Boyle said while the increase to member tax credit was welcome it was hard to know what the net benefit would be and people would also be paying tax on their investment gains through KiwiSaver.

"What will the real net outcome be - I think there needs to be more work done there."

Boyle said he was in favour of the lower tax rates on KiwiSaver funds which are structured as portfolio investment entities or PIEs but said PIEs who were not KiwiSaver schemes would miss out creating a skew in the market.

Some have previously questioned whether many savers are on the right tax rate for KiwiSaver as providers put people on the highest rate of 28 per cent until they get told by the member to change it.

Dropping the lower rates may make little difference if people aren't using them anyway.

Boyle said paying the member tax credit to those on parental leave would help with the gender gap which has already emerged in KiwiSaver.

Richard Wagstaff, president of the Council of Trade Unions, also welcomed the recommendation to keep paying the government KiwiSaver contribution while workers were on parental leave.

"We have long advocated this and would like to see the proposal taken up and expanded. It helps working parents to continue saving while they are caring for children," he said.