The beginners struggle

[Snoopy]

The US has ROTH IRA. The UK has the ISA. All in the form of being tax free investing so this is nothing new. The TFSA came later (only started 10 years ago) only restriction is how much funds transferred in each year. On it's initial introduction it was $5,000 per year, then gradually rising to match inflation (indexed to inflation) to now $6,000 for 2020 contributions. There was 1 year that was $10,000 allowed to be moved in but that was a special year. The restrictions on most part in a TFSA don't really affect the typical investor. Such as say if a person had inside information and bought a penny stock and it grown to like 10,000% fold. Well such penny stocks aren't eligible for TFSA as they don't trade on a reputable stock exchange. So TFSA limit certain equities around the world and I believe the NZX is not allowed (who would?) but most trade the TSX and NASDAQ/NYSE with no issues.

NO restriction when you can sell up and withdraw regardless of age AND the gains are locked in. That is say you had $100,000 balance and like $40,000 of gain, well you don't lose that $100K balance in the following year. You withdraw the full $100K this year, then wait next year and can put BACK that $100K + (the annual contribution of that year) and resume investing.

But here's the real reality. How many people do you know who can put aside $6,000 in savings per year out of their wage / salary? This is the real deal because MOST people can't and when Justin Trudeau came in as PM, he criticised that TFSA was only an investment vehicle for the RICH. The only reason we have Kiwi Saver is simple, people don't know how to save so by taking a portion off their weekly / monthly pay essentially forces them to save ; (same deal in Canada's RRSP).

As a matter of interest, the max contribution you can put into an RRSP is 18% of the annual income. Many high income earners do this in Canada despite their employer would only match 8% or less. But there are some companies that do.

Now going back to TFSA, well say if you wanted to open one up now but never invested before. If you were over 18 in 2009, you do not LOSE the past contributions. The total of those years $69,500 which means you could move in THAT amount to start investing, and this 'contribution amount' continues to grow in future years that you do NOT contribute savings to. So what the gov't is saying that you're not restricted because you don't have funds to invest in 1 year or another; they're giving you the break that in future years you may come across some large sum of savings and you can apply that amount to the past years that you didn't use up.

The sad reality is clear. The NZ investor is going to have less of an AFTER-TAX share investment than the Canadian in the many decades to come.

One area where NZ seems to differ to the UK and Canada at least is that income earners in the latter two jurisdictions have a choice between contributing to a government regulated 'investment scheme' or a government regulated 'pension scheme'.

https://www.moneysavingexpert.com/sa...lifetime-isas/

In the UK if you invest in a 'pension scheme', then at age 55 (rising to 58) you can only take out 25% of your pension scheme as a lump sum. The rest is paid to you as income and you pay tax at your marginal rate on that. Pension scheme contributions are made from pre-tax income. So with a pension scheme you do pay tax eventually but at normally at a lower rate because your income is lower in retirement. Furthermore employers are required to top up any employees pension scheme at a rate of 3% of salary.

However with the ISA which is more an 'investment scheme' your contributions are made after paying income tax. With the pension investment scheme ISA, the LISA, The maximum amount you can save per year is £4,000 (c.f. ten times that for a pension scheme). There is no top up from employers and you have to wait up to five years longer (at age 60) to access it. Why should you need to access your LISA early? You will have to pull money from your LISA before getting access to any pre-retirement age benefit entitlements. Having to do that could decimate your retirement savings.

Both schemes have a state contribution of 25% to top them up. However, if you have to access your LISA early this must be paid back. Higher-rate taxpayers get tax relief at 40% in a pension. So to contribute £100 only costs them £60 – easily beating a LISA.

Is that SBQ 'Pension vs LISA comparison, somewhat akin to the difference between the Canadian TFSA and RRSP?

It looks like the good old Kiwi taxpayer does have some advantage over the UK saver at least.

1/ Kiwisavers can take out all of their savings in a lump sum if they want to once they reach the qualifying age. There is no tax to pay at that point.
2/ No government subsides have to be paid back if the Kiwisaver is reclaimed early due to hardship.
3/ You can go on a benefit without being forced to withdraw your Kiwisaver.
4/ There is no limit to annual contributions
5/ No restrictions on Kiwisaver providers on markets they can invest in.

So really the average punter with a Kiwisaver account is not as badly off relatively as you make out?

SNOOPY