Why does NZ not have this?

[donna]

It still amazes me that the NZ Government do not support people who run personal pension schemes.

In other countries people are incentivised (sp?) to save for their retirement when they are contributing to a personal pension plan. Those Governments realise the 'self-help' attitude of those people and say "thanks a lot - here's a tax break for your efforts".

Why does NZ not follow suit?

What I find even more frustrating is - in the UK the SIPPS (self invested personal pensions) are soon to be allowed for residential property investing....so that means not only has there been encouragement from their government with tax breaks but also the pool of $$ saved up over the years can now purchase property!

Bugger! I have a self invested personal pension here in NZ - why? Why indeed. I get no tax breaks for my efforts and no way can I use the $$ to secure investment properties.

Here's an article that explains what the UK pension holders will be entitled to next April - read article

No wonder the majority of NZers are the poorest in the OECD. (There's my little moan).

Cheers,

Donna

[roseneath_rat]

I'm not familiar with the UK SIPP schemes so can't comment on that. However you may be interested to know that subsidised superannuation schemes used to be fairly common in NZ. Many employers contributed to schemes for employees, but around 5-10 years ago there was a big trend for employers to "cash up" these benefits back to the employees.

The Govt is leading the charge again with subsidised super plans, many state sector employers now contribute $1 for $1 up to 3% of gross income. Hospital Drs get it up to 6% of their income.

There are also small tax benefits for those that sacrifice income directly into a govt recognised superannuation plan. In fact they changed the rules recently (early this year or late last year from memory) to improve tax incentives for low income earners to boost savings into RSPs.

[donna]

The Govt is leading the charge again with subsidised super plans, many state sector employers now contribute $1 for $1 up to 3% of gross income. Hospital Drs get it up to 6% of their income.

There are also small tax benefits for those that sacrifice income directly into a govt recognised superannuation plan. In fact they changed the rules recently (early this year or late last year from memory) to improve tax incentives for low income earners to boost savings into RSPs.

Still seems a long way off proactively supporting people saving for retirement. It's annoying that the focus is always on "the low income earner"....the realty is the majority of NZers are low income earners by OECD standards.

In Australia the average income per annum is $50,000. In NZ it is $38,000 (or was I told $32,000) and also in NZ only 2% earn over $100,000.

In my humble opinion - ALL NZers need to have personal pension plans that employers contribute to and the Government offer tax free benefits.

Cheers,

Donna

[cube]

Start of Rant

New Zealanders, along with Australians, share a 'she'll be right' attitude that actually prevents tax breaks for pension contributions.

Because 'she'll be right', and, come old age, someone will provide for us, there is no personal responsibility felt for saving for old age.

Both NZ and Aus have had to have their saving done for them by the govt. - Aus by way of compulsory work place schemes and NZ via the "Cullen" fund.

In the UK, the govt has, at various times over the last 20-30 years, launched TESSAS, PEPS, SIPPS - all tax efficient schemes for Mr & Mrs Average to get a tax break for saving for the pension or something else. This constant stream of devices has meant that Gen X are well versed in savings opportunities, and take advantage of them.

In NZ, to add to the Rogernomics approach from the 80s, there is a general feeling that tax breaks are for the rich. Say you could invest 5% of your gross salary tax free - it would be portrayed as a way for someone on $200,000 to save $4,000 tax (40% of $10,000), meaning that Mr & Mrs Average actually resent the govt introducing something that is supposed to help them.

At least with property, your gains are tax free!

Donna - I agree with you. The way for NZ to address its poor savings record is to make it tax efficient. So what if some T.V. presenter or politician saves more tax than Mrs A., the important things are:

a. a $1 saved now is a $1 or more that doesn't have to be found later
AND
b. a $1 saved now is a $1 that can't be spent on an import, helping improve the third world level balance of payments!


End of Rant

cube

[roseneath_rat]

Keep ranting cube! It won't change unless we complain.

The American 401K scheme is one we could aspire to, its basically tax-deferred. Any income you put into a personal retirement investment scheme (up to certain limits) is tax-free. Any investment returns you make on the scheme are tax-free. However any funds you draw out in retirement are taxed as income. At that stage you probably have a far lower marginal tax rate, plus you've had the benefit of tax-free investment. Awesome!

Salary sacrifice is about the extent of tax savings for most RSPs for NZ workers. IE- if you are earning over $60k, any money you sacrifice directly to an RSP is taxed at 33%, not 39%. Instant 6% return better than a kick in the head. However employers are not obliged to offer this 'service' so many small employers (and many large employers for that matter) just don't.

Good thread, I could rant on this for days.

[CJ]

There was talk to meving from a TTE scheme to a ETT (or was it EET). T stands for tax and E exempt. The first is when you put your money in (out the tax paid or non tax paid income), second is investment income, and third is when you take your money out.

It was ruled out very early that moveing to a deferred tax scheme (ETT) would put to much strain on the government purse.

401k have a problem if you work for Enron and all your 401k savings are in Enron (or Worldcom etc) so it is not a perfect scheme.

Australia allows personal schemes and you can buy houses but you cant use debt. Theres is a compulsory scheme so is just the cullen fund managed personally.

[muppet]

Hi Guys

The best superannuation scheme in the country is the one run for members of parliament.

I wonder why?

Regards

[muppet]

Hi Guys

Here is something about the super scheme run in Australia from Noel Whittaker's latest newsletter.

NEWSLETTER
By Noel Whittaker

Thursday, 3 November 2005

Superannuation just keeps getting better and better. The much awaited rules that will allow you to split your super with your spouse are now before Parliament and there is little doubt that everything will be in place for the system to start working from 1 July 2006. At this stage it seems all contributions made from 1 January 2006 will be eligible.

Just be aware that both Labor and Democrats opposed the legislation allowing people to split superannuation with their spouses and it is only because coalition controls the Senate that these truly wonderful new rules are coming into being.

It will work like this. Once a year you will be able to instruct your fund to transfer up to 100% of your superannuation contributions in that year to your
spouse. Both undeducted and deductible contributions can be transferred, but the 15% contributions tax on the deductible contributions will have to be taken into account when the transfer is made.

CASE STUDY: Harry earns $95,000 a year and his wife Mavis earns $25,000 a year. They are both aged 58 and have calculated they will need close to a million dollars when they retire. However, this presents a challenge for them because he has $475,000 in super and she has just $30,000. Even though they have spare money to invest because their children have left home and they are debt free, their investment strategy is hampered because the bulk of the superannuation is in his name and he is approaching his reasonable benefit limit (RBL) of $648,946. They would love to plough as much money into superannuation as they can afford but until now, this could turn out to be counter productive. If he exceeds his RBL, he would have to take half his super as a complying income stream or face the problem of being in excess benefits.

The latest changes to super will make a huge difference to them. Now he will be able to salary sacrifice, say $60,000, into super and reduce his taxable income to $35,000 a year. They will still be able to live comfortably on the two incomes, as they will still earn $50 000 per annum after tax, but every year he can instruct his fund to transfer $60,000 to her fund.

Thanks to the new rules, and the miracle of compounding, they will be on easy street when they reach 65. If his super earns eight percent per annum, the present balance of $475,000 will become $830,000 and because of indexation, his lump sum RBL would have grown in those seven years from $648,946 to $858,300. Therefore he is well within his RBL. The contributions of $60000 a year that were placed into Mavis’ superannuation will take her balance to $613000 at age 65 if her superannuation earns eight percent too.

Look at what they have achieved on the day they retire. Their total superannuation is $1,443,000 from which they could withdraw $172,000 each tax free to spend on such luxuries as renovating the house, replacing the car and going on a world trip. This would leave them with $1,099,000.

They start allocated pensions and get a further bonus. The million dollars plus they have in the low tax superannuation area moves to the zero taxed allocated pension fund area. They choose the minimum allocated pensions - $41,910 for him and $28 089 for her. The tax on his allocated pension will be $8,433 but because allocated pensions attract a 15% rebate, in this case $6,287, he will pay tax of just $2,146.
Her allocated pension is almost tax free.

The combination of superannuation, salary sacrifice and the new splitting rules, have not just given them $344,000 of tax free spending money; it has also left them with $1.099 million in a tax free environment while drawing an income of $69 999 per annum less just $2,14 in tax.

How much better can it get! And yet there are still some people out there who question the use of superannuation as a wealth creation tax saving device.

Regards

[drelly]

NZ did have some tax incentives on super schemes back in the 80's but for some reason they were all canned. Perhaps it was the 87 crash that did it?

cheers,
Dave

[Robot]

It is quite strange that N.Z does not have some form of a universal 401K scheme, even if the scheme was not perfect, it would at least serve the purpose of getting people to think about it. With the low savings and the predominate she'll be right attitude you’d think it would be a priority.

Also, I agree with Donna that by OECD standards NZers are low income earners. Shows how quaint N.Z is when some of the countries leading TV personalities get basically vilified for having high salaries, which incidentally are, by OECD standards, peanuts, especially in Susan Woods case.

[CJ]

Shows how quaint N.Z is when some of the countries leading TV personalities get basically vilified for having high salaries, which incidentally are, by OECD standards, peanuts, especially in Susan Woods case.

The Don (Donald Trump) is getting US$1.5m for an hour presentation (and he is donig 10!). Off topic but interesting.

The problem is that incentised super schemes favour the rich as they are the ones that can afford to pay into them. it does not help the little person. We are also in our third term of Labour government. An incentive scheme would in my opinion do very little as people only have so much spare money so they will just move it from there current saving method to the new incentivised method.

The interesting thing is that with negative gearing, property is infact an incentivised saving scheme. And treasury are considering removing that incentive. Image if the sharemarket was increasing to fast so government tried to change the playing feild so slow down its growth, potentially collapsing the market.

[drelly]

Lets also not forget that going into an election, the last National government cut tax and intended it to be for a national super scheme. However, it was cut before the super scheme went to a referendum that was selfishly and stupidly misrepresented by Labour and the media in large part because Winston Peters was the person promoting it. It was shown afterwards that the cut (up to $100/m for someone earning $60k or more) was generally wasted on more debt.