Child investment fund

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Forums › Finance and wealth management › Child investment fund

David321

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#310684 13-Nov-2023 07:55

Hi all,

I am looking to set up a regular payment into a yet to be established investment fund for our child who is 2 years old.

After being overwhelmed by the amount of choice out there and trying to compare all the different considerations between each company (fee's, performance, diversity of funds etc), I decided to give a financial advisor a call, he was kind enough to do this free of charge as he admitted setting the account up through him and the company he works for would not be worth the ongoing 3rd party fees for a basic non-complex plan.

He recommended looking into Simplicity and Kernel and said either would be a good option, I was pretty happy to be able to now only compare important factors between two companies rather than a large handful of companies with the reassurance that either should be pretty good based on the call with the advisor.

I have been looking into both of them and would like to share my findings and ask if anyone else has something to add about either company or could point out something I may have missed?

Simplicity, the high growth fund has a fee of 0.29%, I could not find any fund performance beyond 3 months, I have seen on Reddit a few people were put off due to much of their investments being in NZ companies which stagnated growth. Cant find tax rate on returns but I would assume its 28%?

Kernel, the high growth fund has a fee of 0.25%, 9.86 average return over the last 5 years, 28% tax on returns

Looking at the above info I have, Kernel looks like the better option, but perhaps there is something I have missed, or perhaps one is better than the other for a reason I have not considered? I plan to direct debit a small amount each fortnight into the account if possible, I have not looked at options for this with either company yet, but I assume it would not be an issue with either?

Lastly, if anyone has any info on this - I think 28% tax on returns is pretty steep for a child, as far as I am aware I could set the account up in our Daughters name and she may get a lower tax rate (or would it still be 28% because its a PIE?), but my concern is that when she is 18 she would have full control of the account which is a bit young in my opinion, id like to make sure she is responsible and mature enough to spend it wisely before giving her access to it. I am not sure if there is anyway around this and it might just mean I have to set the account up in my name or my wife's and pay the higher tax and give the money to her when we see fit?

_David_

timmmay

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#3158810 13-Nov-2023 09:13

Simplicity provides multiple years of fund performance data, you may have looked on the wrong page or looked at a brand new fund. They have multiple funds, some may be more NZ based, others not so much. On this page they say "Our diversified funds have up to 4000 investments in over 20 countries. As we're a nonprofit, all charge very low fees - between 0.10% - 0.29%.". Simplicity is a fund manager, the actual funds are managed by public trust NZ. They're pretty reliable. If this is a long term investment general advice is to use a higher growth type fund.

Never heard of kernel.

wellygary

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#3158860 13-Nov-2023 09:24

"(or would it still be 28% because its a PIE?)"

No, they can be taxed at 10.5% in a PIE if their income in under the correct threshold . It is just that 28% is the Top rate , even if your personal rate is higher

https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-income/income-from-portfolio-investment-entities-pies/portfolio-investment-entities-for-new-zealand-residents

"If you're an individual and a New Zealand tax resident, your portfolio investment entity (PIE) income will be taxed using your prescribed investor rate (PIR). The prescribed investor rates are 10.5%, 17.5% and 28%.

You need to let your PIE know what your PIR is. If you do not provide your PIE with your PIR, you'll be taxed at the default rate of 28%. "

corksta

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#3158866 13-Nov-2023 09:52

We do something similar with our two little ones. They have weekly contributions to a KiwiSaver fund and Sharesies. I don't use Simplicity or Kernel so can't speak to them, but given they have no income their PIR will be 10.5%. As wellgary said make sure you specify this as otherwise the default tax rate will be 28%.

cshwone

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#3158869 13-Nov-2023 09:57

corksta:

We do something similar with our two little ones. They have weekly contributions to a KiwiSaver fund and Sharesies. I don't use Simplicity or Kernel so can't speak to them, but given they have no income their PIR will be 10.5%. As wellgary said make sure you specify this as otherwise the default tax rate will be 28%.

Great idea getting the Kiwisaver going early.

corksta

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#3158945 13-Nov-2023 11:09

cshwone:

corksta:

We do something similar with our two little ones. They have weekly contributions to a KiwiSaver fund and Sharesies. I don't use Simplicity or Kernel so can't speak to them, but given they have no income their PIR will be 10.5%. As wellgary said make sure you specify this as otherwise the default tax rate will be 28%.

Great idea getting the Kiwisaver going early.

Yeah I registered each of them with the IRD as soon as we got their birth certificates and started their contributions after that. $10 a week for KiwiSaver and $15 for Sharesies plus contributions from grandparents so that'll add up over time. Sharesies will be for their 18th or 21st birthdays, assuming they turn out to be good kids of course.

duckDecoy

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#3158957 13-Nov-2023 11:34

We have something similar in place, and have it under the child's name as the tax rate of 10.5% is much lower than ours would be (28%). That will add up over your child's life, and you clearly understand that low fees have a big impact.

We've used Simplicity but I have not heard of Kernel. According to their landing page they have 5000+ customers, which is not many really so they must be fairly new. Looking at their performance page I see the High Growth Fund was started: Inception date: 11 April 2022 So how the flip they can claim a 5yr return of 9.8% on their details page is bordering on misleading to me (unless I have missed something? anyone?). You'd also have to check that they allow kids, some places we looked at don't take kids as customers.

Simplicity does make the fund available at 18, and withdrawals have to go to the child's bank account. You could do what we did which was never tell them about it lol. But I guess it will eventually come out. When it is discovered we will make it clear that it is for them but we intend to make it available for use on a house or education or similar so hopefully they realise they will get it eventually and be prepared to wait. We also put some into Milford Assets and they let us nominate an age for it going fully under their control (which we set at 25).

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David321

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#3158972 13-Nov-2023 12:12

duckDecoy:

We also put some into Milford Assets and they let us nominate an age for it going fully under their control (which we set at 25).

That's quite interesting, do you have to nominate the age when setting up the account at the beginning? and can you change the age at any stage?

My thinking here is we could set it to 25 such as you have, but if something pops up we think would be a worthwhile spend before she turns 25 we could change the age to whatever age she was at the time so she could take it out.

Still waiting to here if anyone has any info on the possibility of just taking her money out when she is 17 and putting into an adult account set up under my name. This way I would retain control if I thought that was necessary with the only downside being paying a bit more tax, but at least there would be many years at her tax rate of 10.5%.

_David_

duckDecoy

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#3159058 13-Nov-2023 13:02

David321:

That's quite interesting, do you have to nominate the age when setting up the account at the beginning? and can you change the age at any stage?

My thinking here is we could set it to 25 such as you have, but if something pops up we think would be a worthwhile spend before she turns 25 we could change the age to whatever age she was at the time so she could take it out.

Still waiting to here if anyone has any info on the possibility of just taking her money out when she is 17 and putting into an adult account set up under my name. This way I would retain control if I thought that was necessary with the only downside being paying a bit more tax, but at least there would be many years at her tax rate of 10.5%.

Yes we had to nominate the age when we set up the account. I assume you can change it at any stage, although I am not sure LEGALLY if we could stop them taking it out after they turn 18, its just when they remove us from being attached to it at that age. All contact is via email so we might be able to keep it hush hush for a while though lol.

I take your point about removing it at age 17 and putting it into your account, and I believe you'd be doing it all in good faith, but you might find the Tax Man could look at you and wonder if you simply had it in their name to get the lower tax rate and are now wanting to grab it back. Maybe you just need to have a conversation with them at 18 and tell them it's for a house deposit or something and get them to actively invest it until they are older. We've had all the same concerns, but the reality is you've given them the money so its theirs.

MikeAqua

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#3159118 13-Nov-2023 15:49

I went through this for my non-KS retirement savings. I landed on Milford.

Mike

antant

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#3159462 14-Nov-2023 13:36

SuperLife has a MyFuture Fund, and you can choose what age between 18 and 25 for it to be made available to them. You're then able to choose from a variety of funds.

David321

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#3159467 14-Nov-2023 13:53

antant:

SuperLife has a MyFuture Fund, and you can choose what age between 18 and 25 for it to be made available to them. You're then able to choose from a variety of funds.

Can the age be changed at any time by the parent? is it in the child's name to make use of the lower tax? everything I have seen online is that if an account is in a child's name they get full control at 18 regardless.

_David_

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Goosey

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#3159503 14-Nov-2023 16:09

David321:

antant:

SuperLife has a MyFuture Fund, and you can choose what age between 18 and 25 for it to be made available to them. You're then able to choose from a variety of funds.

Can the age be changed at any time by the parent? is it in the child's name to make use of the lower tax? everything I have seen online is that if an account is in a child's name they get full control at 18 regardless.

you have to provide identification anyway, so you can’t get away with simply saying “it’s for my kids”.

as it stands, with the banks my primary school aged child can simply walk into a bank and ask to withdraw all the cash in their account…assuming they have photo ID and the relevant details of the account.

dont tell the kids the account numbers or bank!