kiwisaver worth a punt?

[CJ]

Minimoke,

I was getting baffled by all your numbers. Correct me if I am wrong but:

- person A is better of after 5 years.
- person A becomes worse of as they cant afford as nice a house due to lower mortgage repayments (as money is diverted into kiwisaver).

Wouldn't Person A just pull out of kiwisaver at that point? (cant this be done?)

Also are you sure Person B will be able to negotiate a $1000 salary increase? the employer contributions to person A are effectively paid by the government via tax credits which wont be avaliable to the employer for person B. Also, they wont give a $1000 increase incase they then opt in (you cant decrease their salary just because they opt in).

[minimoke]

CJ
You are supposed to be baffled by the numbers – do you think the Government really wants to set up a scheme that is so easy to understand that people will see it for what it really is.

Back to Person A - His buying power for a start is less. He might have this theoretical extra $1,000 start up cash but this can’t be used until retirement – 30 years into the future. He’s also been suckered into thinking he’s going to get all this housing assistance – but there is a risk he won’t!

Person A may not be really much worse off because they can’t buy the nice house. The socialist government has determined that KiwiSaver can’t be used to buy the nice house. The buyer has to buy the lower quartile house. Additionally Person A shouldn’t be striving to improve themselves because if they start earning over $50,000 they run the risk of loosing all these housing benefits (The household income can’t exceed $100,000 for two people).

Person A can pull out of KiwiSaver but can only withdraw their savings - not the tax breaks, up front $1,000 or any of the other benefits. Person A could perhaps go on a Contributions Holiday – but each month/year their KiwiSaver fund will be deducting account fees so this may see the residual investment diminish.

[minimoke]

quote:Originally posted by Halebop

Alternatively "kiwi-saving" becomes a cultural norm,

Halebop
Those that can afford to save are already doing so. They already have their property, savings, super schemes and share investments.

Then there are those that can’t afford to save - and if you can’t afford to save you aren’t going to be able to afford KiwiSaver.

Average NZ pay rates are $22 gross an hour and 65% percent of earners had hourly pay less than the average.

Your utopia isn’t going to happen for as long as the majority of the working population take home subsistence pay.

[Tok3n]

If would be nice if you were allowed to invest the money in your kiwi saver on your own (but not on property) for those that don't like handing money over to fund managers.

[Deev8]

quote:Originally posted by Tok3n

If would be nice if you were allowed to invest the money in your kiwi saver on your own (but not on property) for those that don't like handing money over to fund managers.

Something like the UK's SIPPs - self-invested pension plans.

[Halebop]

quote:Originally posted by minimoke

Halebop

Those that can afford to save are already doing so. They already have their property, savings, super schemes and share investments.

Then there are those that can’t afford to save - and if you can’t afford to save you aren’t going to be able to afford KiwiSaver.

Average NZ pay rates are $22 gross an hour and 65% percent of earners had hourly pay less than the average.

Your utopia isn’t going to happen for as long as the majority of the working population take home subsistence pay.

I was a student in the 80's and haven't saved any personal income since the 90's. Today I still spend less than I earn from week to week but then tend to blow it all in a lumpier pattern all the same. Although by the end of the 90's my wage/working income was above average, my pay for the whole decade was well below average. I saved (Generally 30 to 40% of a modest income) and invested because of an understanding of the long term benefits, not because it was easier. Now I don't need to save thanks to earlier sacrifices.

I would phase in a few further steps, allowing personal super schemes and additional investment options, tax deferment until withdrawal and particularly make it compulsory.

If working people are saving an average 4% gross per year and employers are "forced" to cough up the same, once the initial "shock" and "hump" is climbed, it is forgotten. But if about $8bn pa is being saved, with real contributions probably rising by the rate of productivity growth & population growth (2.5%+ pa) and returns compounding at a real +5%, then within 10 years there would be a capital pool of $111b in today's dollars, rising to almost $324b in 20 years. It's improbable that such a pool wouldn't positively impact:

The number of local listed (and unlisted) companies
The volume of available risk capital
The size of local companies
The proportion of local ownership
Commercial Innovation & Productivity
New industries
Rising real wages and improved vocational opportunities
Receipts from foreign earnings

I think not utopia, just math.

Australian governments from both sides of the left / right divide have managed to introduce and augment such systems without ending the world. I don't think it is credible to suggest the same couldn't happen here. Sure we are poorer (there is a linkage to one series of whys I suspect) but unless we do something different with our capital to upgrading kitchens using foreign loans, we will continue to be poorer as well.

[minimoke]

Lets not forget the Cullen Fund already has $3,981m of tax payer funds sitting in it. We could also add to this the $6-7b of ACC investment funds already out there – How much more tax payer cash will it take to achieve the take off you are seeking?

And if your vision has merit (and I’m not necessarily suggesting it hasn’t) then why do the Fund Managers not invest every cent back into NZ. Probably because the NZ investments are already maxed out, relative to offshore opportunites, which might suggest that the returns aren’t there to be made by investing KiwiSaver back into NZ.

And why does Cullen not share your vision. With a stroke of his pen he could easily mandate that anyone wanting to set up a KiwiSaver Fund has to invest all contributions back into NZ Inc. But for reasons better known by others he hasn’t!

[mamos]

Yeah I am disappointed about this too.

I know in Australia you can. I saw an ad by Comsec today about self managed super funds.

A self managed fund best advances your own interests and also encourages greater investor education and following of the sharemarket.

Does anyone know whether there are restrictions in Australia on what you can invest your self managed super fund in?

Cheers

M

quote:Originally posted by Tok3n

If would be nice if you were allowed to invest the money in your kiwi saver on your own (but not on property) for those that don't like handing money over to fund managers.

[Halebop]

quote:Originally posted by minimoke

Lets not forget the Cullen Fund already has $3,981m of tax payer funds sitting in it. We could also add to this the $6-7b of ACC investment funds already out there – How much more tax payer cash will it take to achieve the take off you are seeking?

Just to make a distinction, 4%(+4%) savings are "investor" funds, not tax payer funds. The funds are in distinctly individual accounts, have no taxpayer (Government) guarantee and rely upon the expertise of the fund managers to perform. At 8% of Gross earnings, ACC and the "Cullen" fund would quickly be dwarfed by these super funds if take up is high or it is made compulsory.

quote:Originally posted by minimoke

And if your vision has merit (and I’m not necessarily suggesting it hasn’t) then why do the Fund Managers not invest every cent back into NZ. Probably because the NZ investments are already maxed out, relative to offshore opportunites, which might suggest that the returns aren’t there to be made by investing KiwiSaver back into NZ.

The New Zealand market lacks depth because there are not the same incentives or infrastructure for investing. Consider other "anglo" cultures... UK provides super saving tax shelters, Australia makes savings compulsory and add tax advantages, Pensions and saving are cultural in the USA thanks to a combination of low state retirement funding and tax advantages. Until Kiwi Saver New Zealand had... depreciation allowances on appreciating housing stock.

Add in depth and liquidity, the market can support more local businesses, after all we don't totally lack corporate activity - it is simply owned by Australians and others further afield. Younger medium to (growing) large businesses are almost invariably sold to foreign owners. Branch office businesses don't get to make the sort of strategic decisions that head offices get to consider. More head offices in New Zealand will benefit New Zealand.

quote:Originally posted by minimoke

And why does Cullen not share your vision. With a stroke of his pen he could easily mandate that anyone wanting to set up a KiwiSaver Fund has to invest all contributions back into NZ Inc. But for reasons better known by others he hasn’t!

I don't think anyone would rationally mandate restricting investing to New Zealand. There are rational advantages to geographic diversification and New Zealand corporates gain integration and scale advantages by purchasing or starting up foreign businesses that complement their existing activities. But with any amount of extra savings above what now exists, some will invariably find its way into local investment markets. As with anything subject to momentum, the more attention local financial markets receive, then the more attention local financial markets will receive.

[mamos]

I will answer my own question:

Investments
Other than a few very specific provisions in the Superannation Industry (Supervision) Act 1993 (largely related to investments in assets related to the employer) funds are not subject to any asset requirements or investment exposure floors. There are no minimum rate of return requirements, nor a government guarantee of benefits. There are some minor restrictions on borrowing and the use of derivatives and investments in the shares and property of employer sponsors of funds.

As a result, superannuation funds tend to invest in a wide variety of assets with a mix of duration and risk/return characteristics. The recent investment performance of superannuation funds compares favourably with alternative assets such as ten year bonds.

quote:Originally posted by mamos

Yeah I am disappointed about this too.

I know in Australia you can. I saw an ad by Comsec today about self managed super funds.

A self managed fund best advances your own interests and also encourages greater investor education and following of the sharemarket.

Does anyone know whether there are restrictions in Australia on what you can invest your self managed super fund in?

Cheers

M

quote:Originally posted by Tok3n

If would be nice if you were allowed to invest the money in your kiwi saver on your own (but not on property) for those that don't like handing money over to fund managers.