The beginners struggle

[SBQ]

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

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) ?

[mfd]

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.

[SBQ]

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.

[RTM]

Thought provoking posts SBQ.
Thanks for taking the time.

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.

....... etc

[SBQ]

Thought provoking posts SBQ.
Thanks for taking the time.

Not particularly meant to be thought provoking but to give NZ readers the idea how investing and retirement planning and estate planning is done overseas. Yet when this subject comes about at dinner time table, it's either they don't know enough about finance or investing or economics or to even trying to educate the listeners. I often say like I do in this forum, 'why is it NZ real estate treated so different than NZ equity investments? Real estate has a far lower risk and attracts little or no taxes on the gains vs an investor that buys shares takes a huge gamble (more so if invested abroad) and attracts all sorts of taxes (by the managed fund portfolio paying tax on gains annually), on top of the mgt etc.

The real beginner's struggle is to first get educated about different asset classes and then look at the tax implication. Financial advisors and accountants I speak to in NZ are clueless in advising BOTH areas (taxation and financial advice?) whereas where I come from, it's mandatory for any CFA or financial planner to have a thorough knowledge about taxation from their client's point of view. The rubbish I hear in NZ is these advisors 'won't advise on anything on the issue of taxes' and say we can gladly arrange a tax specialist for a proper assessment. This is so wrong when at the end of the day, what matters to the client that invests their hard earn money is "what's their REAL return", and not some fudged figure people can see in a prospectus saying they would have sum $x,xxx,xxx.xx in 20 or 40 years.

https://www.sharetrader.co.nz/showth...l=1#post818260

Originally Posted by percy
What I should have mentioned is that these initiatives are being funded by the company's strong balance sheet and excellent cashflow,WITHOUT having to come to shareholders for further funds.I take this as very positive,means management are looking to make profits to fund growth.Most small company's think the only way they can grow is to fund growth with more money from shareholders.This dilutes your shares,and takes management's mind off making real profits.So well done PAZ.
My second post on this thread.My third post on 23-04-2011 I stated I brought 80,000 PAZ at 3.5 cents.
Reflecting back on the years,I think I kept doing the right things.ie.
1] Buy a few shares to get to know the business.
2] Make sure the balance sheet is strong,mainly cashflow positive, and current assets far exceed current liabilities.
3]Watch the company to see if they do as they say they will do.
Then I just kept adding to my/our holding on each positive announcement.
A good lesson to me that we all know;And KW always told us:Sell your losers and add to your winners.That usually means buying your winners at higher and higher prices.
Our last purchase of PAZ was 50,000 at 25 cents, for the wife, on 15th April.At lot higher than the original 3.5 cents I paid.So added to our big winner,and have sold other shares in other companies over the years,some at a profit and a few at a loss.Whenever the story, or the reason you brought a share changes,SELL.
Thank you to all of you who have thanked me, and joined the fun.I guess we are all "well positioned."..lol.
I think most Sharetraders will realise our PAZ holding far exceeds what I expected our total share portfolio would be.

re: iceman " It describes how millionaires are made in this game. "

Doing some simple math in Percy's position in PAZ (now I must admit, he lucked out and I can't speculate how many shares he owns in this company). But from what he's mentioned in that post, it's certainly not how millionaires are made.

80000 shares @ $0.035 = $2,800
50000 shares @ $0.25 = $12,500

As a general rule I do not follow NZX listings and the last time I did ever look at any particularly company listed on that exchange, the biggest problem I found is the lack of volume for any person with a large position to move in or out. So when you say in this game that's how millionaires are made, the first thing that comes to my mind is if a person had $1M in cash, what impact on the price of the shares would it have by buying that much? Likewise if you had $1M in PAZ shares, what impact would the share price have if you tried to move it all out at once? Because the way I look at how NZ brokers operate, they cream you by doing frequent trades, they get more commissions from buy / selling in tranches.

If you had $1M in any S&P500 listed company in the US exchanges, ALL 100% of $1M would be bought or sold in a blink of an eye and not a bat would happen to the share price. Just set your limit order and you're away.

BTW, from an investment point of view, the millionaires i've met in NZ have all done it by owning NZ real estate. (i'm not speaking of those that made their wealth from owning a successful business). Yet, i've yet to come across 1 person that has made millions purely by investing on the NZX (and let's not speak about those that started with a huge position).

[RGR367]

.........................

BTW, from an investment point of view, the millionaires i've met in NZ have all done it by owning NZ real estate. (i'm not speaking of those that made their wealth from owning a successful business). Yet, i've yet to come across 1 person that has made millions purely by investing on the NZX (and let's not speak about those that started with a huge position).

I can assure you that I know several members of the NZSA have got millions due to their NZX investments. And you don't need to question whether you can really make millions by investing on just NZX alone.

[Snow Leopard]

....whereas where I come from....

I really wish that you would go back there.

[justakiwi]

I really wish that you would go back there.