House prices in NZ

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Geektastic

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#191233 28-Jan-2016 17:27

From collating many reports over a long while I have concluded that a fair few NZers treat houses as their retirement savings.

As I understand it, in NZ there are no tax free pensions or other tax free savings vehicles (e.g. the ISAs used in the UK, 401K plans from the USA etc) at all. Kiwi Saver is not a true pension plan (although often referred to as such erroneously) it is really just a long term savings scheme with marginal tax benefit (very!).

Compare this to a private pension in the US or UK where the money you put in is tax free. So for example, a higher rate taxpayer investing £1 from his after tax income has an additional 66p paid in by the government by way of reimbursement of tax paid etc. The money is locked up like KS until retirement.

Do you think the time has come for that kind of savings product to be made available in order to provide an alternative place for funds to be put, hopefully contributing to a reduction in house prices via reduced demand?

Alternatively, should KS be altered to be more like that?

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MikeB4
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#1480785 28-Jan-2016 17:40

The big issue with retirement savings in NZ is Governments fiddle with it constantly. They change the rules and change the goal post and this makes folks to lushest little confidence.

Here is a crazy notion, lets give peace a chance.

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#1480787 28-Jan-2016 17:41

Kiwisaver just keeps being diluted, and eventually it will become compulsory, and the government won't give any tax credits at all. It also should not be used as away to buy a first home, because all that has really done is help increase house prices. Also why can you withdraw your kiwisaver investment, to buy a house as an investment, over other forms of investment which may out perform a house. They also keep changing that, and now you can withdraw it all, apart from the kickstart. Then you can also get all sorts of other additional grants to buy a house, but you are restricted to buying one under a certain amount, where there are very few houses, or you can only buy in bad areas.

Many people who work in the public service are in a government pension scheme, although I don't think the schemes are as good as they used to be. My dad was, and he gets a fairly good pension from it on top of the super.

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#1480791 28-Jan-2016 17:43

MikeB4: The big issue with retirement savings in NZ is Governments fiddle with it constantly. They change the rules and change the goal post and this makes folks to lushest little confidence.

Yeah it has always been that way. It should have been run like a SOE, so the government had no direct control over it. There is currently little incentive to join up. You do get up to $500 per year of tax credits, but that isn't great, and is half of what it was.

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#1480793 28-Jan-2016 17:45

I know people who have invested in property because they are concerned that the state pension will not cover the cost of living. Seems reasonable to me. The problem with the British private pension system is that you have to buy an annuity (I believe this has recently changed), and so your fortune is tied to the stock market. Great in a bull market, not so great in a bear. Recently changes start to make it sound more like Kiwisaver in that you can get it as a lump sum on maturity. I agree that payments should be from pre-taxed income. The other difference is that in NZ, KS is taxed on fund growth, in the UK you are taxed when you get your money.

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#1480794 28-Jan-2016 17:48

jmh:

I know people who have invested in property because they are concerned that the state pension will not cover the cost of living. Seems reasonable to me. The problem with the British private pension system is that you have to buy an annuity (I believe this has recently changed), and so your fortune is tied to the stock market. Great in a bull market, not so great in a bear. Recently changes start to make it sound more like Kiwisaver in that you can get it as a lump sum on maturity. I agree that payments should be from pre-taxed income. The other difference is that in NZ, KS is taxed on fund growth, in the UK you are taxed when you get your money.

They do have some other nasty taxes in the UK, like inheritance taxes. So in NZ a lot of people do pass down money between generations, if it hasn' t been eatten away by rest home and care costs.

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#1480800 28-Jan-2016 17:55

Financial planning 101: Any surplus income should be used to pay down debt before starting savings. The interest savings on the debt are entirely tax free.

The issue is we've normalised lifelong mortgages to fund lifestyles we can't afford.

The govt providing tax incentives on savings, just so the Aussie banks can continue to suck us dry is not the solution.

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Geektastic

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#1480804 28-Jan-2016 18:00

jmh:

I know people who have invested in property because they are concerned that the state pension will not cover the cost of living. Seems reasonable to me. The problem with the British private pension system is that you have to buy an annuity (I believe this has recently changed), and so your fortune is tied to the stock market. Great in a bull market, not so great in a bear. Recently changes start to make it sound more like Kiwisaver in that you can get it as a lump sum on maturity. I agree that payments should be from pre-taxed income. The other difference is that in NZ, KS is taxed on fund growth, in the UK you are taxed when you get your money.

Depends. Yes it has recently changed - again. Until about 20 years ago, all you could do was get the annuity.

Then a change occurred that allowed you to get x% as a tax free lump sum and the rest had to go as an annuity (annoyed my late father hugely).

Most recent change is that you can get the lot as a lump. Not sure of the tax status.

Unless it was a 'Final Salary Scheme'. Such schemes were quite common when I left University in 1990 but alas are all but extinct for new entrants now. They worked in the following way: If you retired at say 65, having put in the full term of service (40 years or whatever it was for that particular scheme) then you got (more or less) 50% of the average of your last 3 years salary as a pension, index linked forever, plus 3 times your final salary as a lump sum. They were common schemes in big companies like Rolls Royce, BAE and so on, as well as the civil service and local government.

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#1480806 28-Jan-2016 18:02

mattwnz:

jmh:

I know people who have invested in property because they are concerned that the state pension will not cover the cost of living. Seems reasonable to me. The problem with the British private pension system is that you have to buy an annuity (I believe this has recently changed), and so your fortune is tied to the stock market. Great in a bull market, not so great in a bear. Recently changes start to make it sound more like Kiwisaver in that you can get it as a lump sum on maturity. I agree that payments should be from pre-taxed income. The other difference is that in NZ, KS is taxed on fund growth, in the UK you are taxed when you get your money.

They do have some other nasty taxes in the UK, like inheritance taxes. So in NZ a lot of people do pass down money between generations, if it hasn' t been eatten away by rest home and care costs.

True - and CGT, and Stamp Duty, and etc etc!

IHT only kicks in at a fairly high level - around $2 million equivalent with the new 'family home exemption' thing I believe.

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#1480807 28-Jan-2016 18:04

So does anyone think such a scheme (and I include ISAs as well - some people made £1 million tax free out of those!) would assist NZ to move from a dependency on housing as the only available tax free gain there is?

jmh

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#1480809 28-Jan-2016 18:11

Geektastic:

So does anyone think such a scheme (and I include ISAs as well - some people made £1 million tax free out of those!) would assist NZ to move from a dependency on housing as the only available tax free gain there is?

I think it's more a case that people don't trust the government or banks to look after their money.

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#1480834 28-Jan-2016 18:41

mattwnz:

Also why can you withdraw your kiwisaver investment, to buy a house as an investment, over other forms of investment which may out perform a house.

Because first home buying is a pretty big political issue..

Also, you can use that money to buy your first home, as in somewhere for you (and your family) to live. It may eventuate that it could become an investment property in the future, but you can't withdraw with the intention to purchase an investment property.

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#1480857 28-Jan-2016 19:15

hashbrown: Financial planning 101: Any surplus income should be used to pay down debt before starting savings. The interest savings on the debt are entirely tax free.

The issue is we've normalised lifelong mortgages to fund lifestyles we can't afford.

The govt providing tax incentives on savings, just so the Aussie banks can continue to suck us dry is not the solution.

There is no one way. I know someone first hand who bought property with money she didn't have and by 30 she is now a multi millionaire thanks to house price capital gains.

hashbrown

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#1480867 28-Jan-2016 19:44

joker97:
hashbrown: Financial planning 101: Any surplus income should be used to pay down debt before starting savings. The interest savings on the debt are entirely tax free.

The issue is we've normalised lifelong mortgages to fund lifestyles we can't afford.

The govt providing tax incentives on savings, just so the Aussie banks can continue to suck us dry is not the solution.

There is no one way. I know someone first hand who bought property with money she didn't have and by 30 she is now a multi millionaire thanks to house price capital gains.

In this market, everyone is an expert. And when it falls, so will the number of property investment guru's we have to endure.

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#1480876 28-Jan-2016 20:02

Geektastic:

So does anyone think such a scheme (and I include ISAs as well - some people made £1 million tax free out of those!) would assist NZ to move from a dependency on housing as the only available tax free gain there is?

The trick is to make saving more attractive than housing. But with them reducing the interest rates so much, where savers are getting less and less, and it is now so cheaper to borrow, so many people are now borrowing so much money. If they make kiwisaver compulsory, then people have no choice, and they don't need to make it more attractive. They will make people put in 8% of their income and it will eventually replace the super (which will become means / income tested). We have been chipped away and conditioned by the media for this to happen. It was only about 20 years ago when Winston (I think it was him) tried to bring in a compulsory saving scheme. But it was voted out at a referendum, as people feared it would replace the super. So instead they have brought in kiwisaver which essentially is going to become that scheme over time as it is eroded down. They managed to get it in by initially making it really attractive, and then chipping away the benefits.

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#1480941 28-Jan-2016 22:05

mattwnz:

Geektastic:

So does anyone think such a scheme (and I include ISAs as well - some people made £1 million tax free out of those!) would assist NZ to move from a dependency on housing as the only available tax free gain there is?

The trick is to make saving more attractive than housing. But with them reducing the interest rates so much, where savers are getting less and less, and it is now so cheaper to borrow, so many people are now borrowing so much money. If they make kiwisaver compulsory, then people have no choice, and they don't need to make it more attractive. They will make people put in 8% of their income and it will eventually replace the super (which will become means / income tested). We have been chipped away and conditioned by the media for this to happen. It was only about 20 years ago when Winston (I think it was him) tried to bring in a compulsory saving scheme. But it was voted out at a referendum, as people feared it would replace the super. So instead they have brought in kiwisaver which essentially is going to become that scheme over time as it is eroded down. They managed to get it in by initially making it really attractive, and then chipping away the benefits.

Surely if the salary you put in was free of tax, that would make it more attractive?

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