Thank you for this explanation. I have never understood the apparent contradiction until now.
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Canada's choice of pension is a many but TFSA and RRSPs are not mandatory. I recall some years ago the Finance Minister of NZ wanted to make it compulsory for ALL workers in NZ to go into Kiwi Saver. In Canada RRSP is entirely up to you but most choose so because of the ability to defer tax and REDUCES the person's taxable income. I'm not sure if this is done for Kiwi Saver because the small 3% employer matching would make much difference to the person in NZ. I question, if the wage earner were to contribute 8% of their pay into Kiwi Saver, does THAT 8% lower their taxable income? Does IRD recognise you earned say $100K and can take $8,000 off that so your actual taxable income would be $92,000? In Canada they have RRSP contribution limits that you can carry forward if not used so you can have situations where 1 year a person pays so little income tax as they keep lowering their taxable income. I know the carry forword and back for contributions is not allowed in NZ.
@1) and that's entirely the point i'm hitting hard at. Kiwi Savers are being hit hard with tax every year without the ability to future plan your tax outcome in retirement. No consideration to the high income earners or the low income earners throughout their lifetime. For RRSPs, I should add that all of it must be converted to RRIF before age 71. Basically the gov't does not want the person to compound their investment forever so the conversion to an 'income fund' so they can get taxes on it. Keep in mind when the person dies, deemed disposition kicks in so the whole portfolio will be taxed. Under RRIF, there's a minimum amount of income that MUST be drawn from it but the investments stay compound tax free.
@2) same with any gov't grants in Canada. The only time they do have to be paid back is if the person doesn't play by the rules and over contributes, withdraws too early, etc but rarely the case. In 2020 the Cdn gov't has introducted the FTHBI (1st time home buyer incentive) which the gov't will lend 5% (or 10% on a newly constructed home) for amounts up to $500K. That loan has no annual repayment but instead, adds as part equity stake to the person buying their home. Either 25 years or when the person sells, that capital gain that results is when the person repays the gov't ; a WIN : WIN because the person doesn't pay interest on the loan and the gov't of Canada shares part of the capital gain.
@3) same deal in Canada as laws prevent the sale/withdrawals from the RRSP ; but generally speaking people on welfare or on the dole don't have much of a savings plan.
@4) only limit on the RRSP is 18% of your total annual income. But as I mentioned before, the more you contribute, the lower your taxable income becomes.
@5) as i've hammered before, there lies a huge tax disparity between NZ shares vs overseas share that fall under FIF. The small investor up to $50K NZD is better off investing abroad as the FIF doesn't kick in until over that threshold. You have a disparity between Kiwi Saver funds and the individual in this respect ; why? and as I mentioned before in other threads, the individual that invests abroad directly owning the shares can pay no FIF on years of loss ; why the fund manager is stuck paying FIF regardless on years if they profit or lose % return on their clients.
So when you look at all the complexities and differences, it's no wonder why people keep investing in real estate instead of the sharemarkets. IMO the average person in NZ is better off getting a mortgage from the bank to leverage their investment in another house.
FYI, Canada has a mandatory pension scheme called CPP (Canada Pension Plan) where a portion of the pay cheque is paid into. We don't have this in NZ and it's not to be confused with the gov't superannuation scheme; Canada has that too called OAS (Old Age Security) pension that everyone gets; and if OAS is not sufficient say you earn below income threshold ; you can claim the 'supplementary benefit'. So when you look at Canada at the various pension plans and schemes they have, it's no wonder why very very few exPat Kiwis living in Canada would ever reside back to NZ. Why would they when FIF will hit them so hard and if they had to sell up their portfolio, the tax on the gains would hit them hard. End result being, who in their right mind would move from a deferred tax scheme to an inequitable tax scheme we have in NZ (FIF/no tax on NZ share gains etc) ?
Out of curiosity, why did you move here? I came from the UK for the lifestyle, not the tax system, and have no regrets. Now I play the tax hand I am dealt here, and find it reasonably easy to save and invest. Tax certainly doesn't stress me out, happy to help out the less fortunate and pay my share.
There are 2 things in life you can not get away from. One being taxes & the 2nd, being part of a family. The latter is what brought me to NZ and the former was what took me away from Canada. Now i'm confident to say the table has turned around when comparing both places.
Family relations that are close to me know my displeasure in the direction that NZ is going (or has gone in the past 10 years). It never use to be that way when I first arrived in 1996. Back then NZ never had Kiwi Saver, taxes on foreign investment or any form of regulations like the NZ FMA, OIA, & AML. GST was 10% More people owned their homes and newly uni grads and trade workers had better prospects of landing a decent job.
I recall some years ago waiting in the airport lounge before boarding talking to an older man how he believed NZ was still the land of the milk and honey. I questioned him about home affordability why it's so expensive in Auckland. How do normal jobs like teaching can afford to live in places like Auckland when their pay is not reflective to the cost of living. His response was well... not very convincing and this is what I find with most of the view in NZ. No one questions and no one seems to care until it goes way way out of control that you can't fix it. No different when I spoke to an architect here in Chch from one of these major group builders. I was asking about lifting the building standard like we do in Canada. Issues like solar PV, thicker walls, air tight construction with balanced pressured HRV, etc and the guy's face had the same look as the guy I spoke to at the airport. His response was, "well you may think these are great ideas but unfortunately, the people in NZ don't think this way and the reality is they really don't care about the price of electricity over the long term. Instead what they feel is they accept the small gradual increases in electricity pricing annually and adjust their lifestyle / income towards that". He also said you're never going to get a payback on these improvements and certainly the insurance companies don't care for it. With no surprise, i'm seeing the same views in NZ finance too because so little of this subject is talked about in general public ; perhaps need to look at the schools for a lack of teaching in this subject, because in Canada, finance is such an integral part in living ; on the TV news, talk shows, etc. So what I learned here in NZ is people don't care about money and therefore the ignorance of not knowing would lead them to less stress in life. Perhaps question why 25% of NZ's global population lives abroad? Why are few senior expats moving back to NZ? There are a lot of questions to be asked but no one in NZ seems to want to hear the real answers.
Canada use to have this kind of attitude towards taxation and finance to the point that the PM had to address brain drain and a flight of capital leaving the country. The US health care system was continually draining the skilled doctors and nurses from Canada (I know 1st hand of close friends that left Canada during the time I left and you know... they are NOT going back). So if you question about being "happy to help out the less fortunate and pay my share" well there's a rude awakening about this view. What happens is the gov'ts realise there isn't enough $ to go around and people's life and liberty begins to erode. They bring in new taxes, elevate the cost of living, and keep things highly regulated (gee sounds the opposite of what Donny Trump is trying to do in the US). All while we are lead to believe 'Yes it's OK if i'm paying more taxes and taking a huge cut on my standard of living' while we see the skilled leave NZ. As I told my wife, the 2 of us have no problems and financially we've already made it and it would not matter where we live. However, when I speak about my children? Whoa daddy that's an entirely different story. How acceptable that it becomes cultural that the only way the next generation can buy their 1st home is to rely on their parent's wealth to make it affordable? and to think how that man at the airport says NZ is the land of the milk and honey?
So you may ask again, why am I still living in NZ if the grass is greener in Canada? Again, you can't run away from family. But 1 day my relatives can't live forever and 1 day my children will grow up and will need jobs. So until that time comes we are pretty much stuck here.
Of course, we learn lowering risk in elementary stats class and it's sold on to everyone in portfolio theory. But it's by no where near a proven strategy for outperforming the market. You should know the more you diversify, the less return you get as you get closer the level of averages (kinda like the limit function in calculus on the x/y graph where the line gets closer and closer but never gets to the line)
The whole investment community has been lead to believe everything has to be diversified. You have the gov't embracing it, schools embracing it, and who are the real losers? The real winners are the fund managers that make themselves look good (who spend a lot of time doing nothing) because they don't know how to produce exceptional returns with skill. The losers are the investors because as I said before, more $ is robbed from them in the form of administration fees, taxation, and making bad investment choices, than showing real returns. I recall some years ago the NZ Superannuation fund was trying to sue some bank in Spain because they took a bad stake in a poison pill venture. Like who was the goon that OK this kind of deal? - and you can be sure no one was held accountable. The markets are not efficient enough to make diversification a relevant AND reliable form of investing to depend on. Yet, financial advisors still push this hopeless strategy to their clients. I see over diversification all too often. You have a newb investor that says I have $10,000 to invest and instead of picking key performing stocks in an index, they're compelled to believe diversification is the key and buy like 30 stocks over the 5 years they stay invested. Or they feel that so and so Kiwi Saver fund is good and puts $10,000 to them for which the aggressive fund allocation has like 200 different shares invested. Then the investor comes back after several years saying how come my investment returns are so little? Well the financial advisor will always say something like, "Investing is a LONG TERM plan and you should ignore the times when the market is doing very bad". They all seem to have the right excuses...
That's why in Canada, the gov't realise that for the vast majority of 'small' investors looking to save, they brought out TFSA, RESP, RDSP, etc aimed specifically for the low and middle class people that would struggle to save $2K to $6K a year. By leaving them with a tax free status on those registered investment plans, it gives a HUGE incentive for the general public to get knowledgeable about finance, when in the past, it was only the big boys with large 7 figure accounts that would make the money. The small guy doesn't have to seek to pay lofty fees for some 'financial advisor'; there's already plenty enough information online about investing; so they can invest directly in a low cost discount brokerage account that doesn't charge moronic fees like 1% per year on total account balance that i've seen with some NZ brokerage firms.
"You should know the more you diversify, the less return you get as you get closer the level of averages. . . "- I'm inclined to think that how and what you diversify is also important. Conversely, the more you concentrate, the further away from the level of averages you can get. Out of idle curiosity, what do you benchmark yourself against?
"I recall some years ago the NZ Superannuation fund was trying to sue some bank in Spain because they took a bad stake in a poison pill venture. Like who was the goon that OK this kind of deal? - and you can be sure no one was held accountable." - Context can be quite important - should it turn out that your goon made 5 good calls for each one bad one, what then?
But in general, I suspect the broad thrust of your comments about the New Zealand retail financial services industry is sure to strike a chord with many.
How and what, and concentrate? You can pick narrow base fund that concentrate in a certain segment but then they should be measuring their performance their relative index. ie. relevant commodity index, relevant emerging market index etc. The same rules apply, the more you diversify, the more you become average to that index. Personally i'm only interested in a broad market index so I look at the S&P500 or the DOW index. That is the same benchmark that Buffet refers too and so should most managed funds when they are choosing a broad base diversification for their clients.
As for the NZ Superannuation Fund, the link in question is here:
https://www.stuff.co.nz/business/ind...over-200m-loss
That goon needs to measure his performance to OTHER superannuation funds around the world just like you would with an index fund. So if he's picked 1 bad one (re: the Portugal bank loss), then his other 5 good calls need to be compared to the good calls by other gov't pension funds in other countries. Perhaps there is no benchmark if the NZ Superfund holds most of it's assets in NZ. But I can assure you no pension fund would limit their investment in a narrow base investment if they choose to hold investment mostly in their native country. But going back to the bank investment in Portugal. You have to question how was this goon sucked into this investment by GS? Why couldn't GS suck in some other managed fund in another country? My guess.... the NZ Superfund didn't know better because they never had better information outlining the risks they were getting into. Because it certainly sounds very fishy to lose that $ in 1 or 2 months time frame. Certainly, it's an issue of lack of information for all investors and if you don't have a strong form of market efficiency, then there's little point of pushing the diversification button.
Why would it? Is it not because the truth hurts too much? Just like the NZ building industry we're timber prices are 3 times the price in NZ than what the American can buy at Home Depot? HUGE barriers of trade and HUGE levels of regulations. How about that FMA the NZ gov't dished out last year? You know how stupid NZ looks when they impose a NZ regulation abroad saying for eg. to US brokerage firm, if you're providing services to a NZ resident, that you must comply to our NZ regulation by banning the client access to derivatives and futures / options and forex? What are the repercussions over this? I tell you, the foreign markets will just exclude the NZ market and then you wonder... why is it the NZX experience dwindling liquidity? Here's what I see, the NZ equity market is gonna dry up like a deep fried potato chip and the only people holding the bag are the poor NZ investors.. stuck in schemes like Kiwi Saver all while you have FIF that distorts the tax issue when you want to invest abroad. Other developed nations like Sweden, I know for fact opens the door wide open. Their residents and their pension funds allow full access to foreign markets with no regulation or restriction and certainly not such tax disparity like FIF.Quote:
But in general, I suspect the broad thrust of your comments about the New Zealand retail financial services industry is sure to strike a chord with many.
At the risk of pissing people off, can I just say, this thread is getting off track again, and the current debate is really not helping me with my original question, or anything else for that matter. Maybe the thread has run its course and we should all move on to something else.