Kiwisaver Problems: keep your eye on your provider.
Filed under: Avalon's Money Thread, Cost of living, General Budgeting, Property & General Investing, Retirement, Pensions and Kiwisaver
I always thought putting the Inland Revenue in charge of Kiwisaver was a daft idea. Seems I may have had a point. The IRD passes on your information to one of the default providers, and then thats the end of what they care about. It seems that a lot of the default Kiwisaver providers (these are the ones you are automatically enrolled with if you don’t make your own choice), have got the wrong information, and cant get in contact with the people whose funds they are running.
It worries me that there appears to be an awful lot of people who are completely unaware that they have a Kiwisaver fund. There are 200,000 people who cannot be contacted by their fund managers.
The problem means people may not receive the letter telling them who their KiwiSaver provider is or the annual statement on their Kiwisaver balance and annual report explaining the returns of their fund.
McAllister [from ASB Group Investments - the larges Default provider] said some people could be in KiwiSaver for more than a year and still not know because it was new and they did not know what to expect from their provider or Inland Revenue.
“It appears it’s an IRD problem. It raises questions about how accurate IRD’s information is.
You need to be aware about Kiwisaver. You are automatically enrolled into a fund, whether you like it or not, and have to opt out if like us you think Kiwisaver is crap.
Make sure you understand what is at stake here – as immigrants you will face this the minute you start a job,a dn you have 2 weeks to make up your mind about staying in Kiwisaver forever or opting out. Do your homework.
More information on Kiwisaver can be found in Avalon’s Guide: 13 things you need to know, and 17 things you really need to know!
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Tax Working Group – Why?
Filed under: Economics, General Budgeting, Jobs & Work, Property & General Investing, Retirement, Pensions and Kiwisaver
(Other than whacking “rich pricks” over the head with a big stick for being greedy of course.)
Well, for a start – the National Government claims it doesn’t actually want to increase overall tax. And if you believe that – I’m the tooth fairy.
What they want to do is move away from taxing income, to taxing capital – or wealth. For the purposes of this – you need to understand that Wealth is not about how much you earn – it’s about how much you own. So if you have scrimped and saved and accumulated assets that are worth money – they want to tax you on it. Because as previously discussed, it’s not fair that you scrimped and saved to accumulate wealth.
And if Income Tax is too high – it discourages people from getting better jobs and earning more money because they will lose too much of it in tax. And that of course means they have less money to spend. And economies don’t grow if people don’t spend.
The other main goal is to “align the tax rates”. This is because at the moment, the top rate of personal tax is 38%, whereas tax on trusts is 33% and tax on companies is 30%. Which means that taxpayers who would normally be charged 38% can “hide” their income in trusts and companies to reduce their tax.
So dropping the top tax rate to 30% should stop us having to do this.
To see why in theory they need to do this – you need to look at what happened when Michael “I hate rich people, even though I earned a whopping $276,000 a year plus tax-free expenses” Cullen, introduced the 39% income tax bracket.
What this shows is that the year after the tax was introduced, there was a huge spike in the number of people paying tax on 60k a year income, because they used measures to legally reduce their incomes down to that level.
So in trying to tax “rich” people – they kinda failed.
Now – the new government wants to make it “fairer” and stop that happening. Unfortunately there is every chance this too will fail – because in general – the richer people are, the more they can move and are prepared to make choices about where they live and what taxes they will pay. And there’s always loopholes.
Like us for example – who moved from the UK to get away from 51% tax on our income and new and more colourful taxes being imposed left right and centre.
So in general terms, lowering the top tax bracket is a good thing. I just can’t get my head round why taxing people who have invested is a good thing to replace it with. It’s kind of a big incentive not to be financially stable and able to support yourself in retirement.
Personally – in the perfect word in which I am the benevolent dictator for life – I would insist that Governments have to stick to strict budgets, have to stop throwing money away, and treat the money they take in taxes with some respect, and the taxpayers as something other than a constant deep well of extra funds every time they fail to stick to their budgets. Like setting an $11 million budget to refurbish the Supreme Court building and then spending $81 million instead because taxpayers won’t complain.
Which is like budgeting to retile your bathroom, and deciding instead to knock your 3 bed house down and build a 70 bedroom mansion instead, and demanding the overspend from your boss.
The thing about this is that if we as the people overspend each month – we cannot in fact go to our bosses and demand that they pay us more. But the government can do that with tax – because if you don’t pay it – they can send you to jail.
So while the “why” may be sensible and in some ways a good thing – it’s kinda fixing the wrong problem. We don’t need to give them any more taxes – they need to stop wasting the money they already screw out of us.
Please bear in mind that the Tax Working Group changes are recomendations – and may not happen.
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Tax isn’t fair – deal with it.
Filed under: Economics, Property & General Investing, Retirement, Pensions and Kiwisaver
Over the next year or so, there could be some huge changes to the way you will be taxed in New Zealand. There are a lot of strange assumptions, which are driving the recommended changes. A bunch of “experts” and academics called the “Tax Working Group” have come up with recommendations. However, here I thought it worth going back to one of the basic assumptions – A fair tax.
The headline at the moment is that property investors don’t pay tax, and in fact rort the system by getting tax refunds. This is because if you make any losses in your rental properties (and most of us do because rents in New Zealand are kept artificially low) then you can offset these against your income from a job and therefore pay less Income tax.It is blatantly ignored that you can do this with any business.Property investors (like us) are thought of as greedy “rich pricks” (a term coined by the typically potty-mouthed ex-finance minister Michael Cullen).
Of course, we personally are considered even more evil and greedy because Hubby has a well-paid job. It escapes most people that we worked our arses off to get qualified in order to earn that money. It’s not fair!
So – why do people think it’s unfair that we use a system to allow us to pay less tax?
Because most people have been conned into thinking that Tax is inevitable. Like death. Only it isn’t.
The fact is you do not have to be in anyway rich to legally cut your taxes. You just have to be smart. You also need to get your head round the fact that paying money you earn to someone else is not actually fair, and that the richer you are – the more you pay – is even less fair.
Let’s put it this way:
- If someone comes into your house and steals your TV – you go to the police and make a report. You make a claim against your insurance and get the money back to replace the TV.
- You don’t for one minute consider it fair that someone has come into your home and taken something that they may not be able to afford, and therefore have a right to steal it from you, because it’s not fair that you had the money to buy it and they didn’t.
- And yet – the government takes say 30% of the money you earn, and gives it to someone else. And you think this is OK because it’s called tax.
Here is something else to think about:
- While there is no “tax-free limit” to earnings for low income people the way there is in the UK, the bottom 40% of households pay no income tax because they get benefits to compensate.
- Yet the top 10% of earners in New Zealand pay 42% of the total income tax take.
- If you take out the 40% of people that effectively pay no tax because they get refunds distributed from higher tax payers, we are then responsible for a whopping 76% of the income tax take.
And yet we are the greedy ones for not wanting to pay so much of what we work our butts off to earn. Hell alone knows how much we would collectively pay if we didn’t have a way of offsetting tax.
It’s also worth noting that the HUGE tax benefit that property investors fleece off the government in Tax Refunds accounts for just 1.6% of the entire tax take.
Yep – we are about to get nailed to a cross then burned alive for a whopping 1.6% of the total tax budget – which will then be given to other people. I personally don’t think any of this is going to make that 40% who want our blood any richer.
But I could be wrong.
Over the next week or so we will be going over the recommendations (and they are just that – recommendations) and highlighting what they mean – good and bad.
If you want to see a good and funny illustration of why “tax cuts for the rich” are so wrongly maligned – have a look at this blog post: How tax cuts work.
And for some interesting facts about just how many evil greedy property investors there are in New Zealand – read Are Kiwis really obsessed with property?
And for a light hearted look at just what we personally think of the Inland Revenue (in any country) – take a look at Inland revenue Humour.
The UK State Pension – what happens to it when you emigrate.
Filed under: Avalon's Money Thread, Cost of living, Retirement, Pensions and Kiwisaver, The Book and Website
This is something that I’ve actually had a lot of emails about recently, so I thought I would write a little about it and there seems to be some really whopping great misconceptions out there.
The main thing you need to understand is that you cannot double dip on your state pensions. You do not have the right to take a UK state pension and add it to any New Zealand superannuation you may be entitled to.
You just can’t.
If you choose to take the UK pension you are entitled to – it gets taken straight off any Superannuation you would get. There is a chapter in Avalon’s Guide explaining the nuts and bolts – but this is the bit you need to understand.
- If you are currently receiving the UK State Pension, the amount of pension you will get is frozen at the level it is when you become a resident of New Zealand.
- If you emigrate, and then later become eligible for the UK State Pension, the amount is frozen at the level it was when you left the UK.
- Any UK State Pension that you do get will be taken off any New Zealand state Superannuation you may be entitled to.
- This means that you cannot claim the UK state pension and add it to the New Zealand Superannuation.
- You can continue to contribute to the UK State Pension while you are resident in New Zealand if you wish.
- Any contributions that you make will increase your UK State Pension.
- Remember though that any increase you do gain will simply decrease the amount of New Zealand Superannuation you are entitled to.
As far as I’m personally concerned, I have not been expecting a state pension for the UK government since I was about 20 years old. The pensions system in most western countries is bankrupt, and there just isn’t the money to keep paying it.
You should also be aware that the National Insurance you pay in the UK is not being used to fund your retirement. It’s paying for the pensions of the people currently receiving a state pension. Your pension needs to be paid by future taxpayers. Thus the problem – there aren’t anywhere near enough people to pay it. The number of pensioners is growing, and the number of taxpayers isn’t growing anywhere near as fast.
And it’s no better here in New Zealand. As Gareth Morgan (an investment provider and somewhat annoying “guru” and “commentator”) says in his book Pension Panic:
If you think the government is going to keep you in the style to which you have become accustomed once you’ve retired, think again – unless you’re on the breadline now.
I just wanted people to be aware that this information is out there, and while I probably wasn’t able to think of everything that should go in a book about finances and emigrating to New Zealand, I really did think of most things. If you want to be prepared and not face these shocks, then read it. It may not always be fluffy – but it will mean you are prepared.
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How shall we pay it back? By having a plan!
Filed under: Cost of living, Economics, General Budgeting, Hubby's Views, Retirement, Pensions and Kiwisaver
I was working on an event about CFO’s the other month, and needed some humour to illustrate advice you don’t want from current or former Financial Chiefs. With much joy, I found this;
And the following interview conducted by the BBC, of a UK Govt minister talking about how the UK Govt. is going to pay back the 606Bn UKP debt it’s due to rack up in the next couple of years. As I can’t find the link anymore you’re have to forgive the slight paraphrasing. The interview really did go something like this;
BBC Interviewer – How will you pay it back?
MP – by having a plan!
BBC – and what’s the plan?
MP – The plan is to pay it back!
BBC- Yes, and what is the plan?
MP – The plan involves passing legislation saying that we’re going to do this, it’ll have targets!
BBC – Yes, and we have targets for everything including NHS waiting lists, University education etc. and none of them have been met.
MP – No they haven’t, and that’s because of the 18 years of Conservative Govt ruining the economy, but this is different.
BBC – How?
MP – Because we’re the Govt, we say we’re going to do it and we have a plan.
BBC – Yes, with respect minister, having a piece of legislation doesn’t tell any of us how you are going to find 606Bn pounds over the next four years (assuming you win the election), to pay back this debt. How can you possibly pay back this much money without making savage cuts to public spending?
MP – Well, it’s quite simple – we have a plan. To pass legislation. Which will have targets. And we wont need to cut any public spending, because public spending is what will drive the economic growth to bring us out of recession.
BBC – So lets be clear, you’re not going to cut spending, you’re not going to raise taxes significantly, where is the money going to come from?
MP – As I said, it’s really quite simple, we’re going to have a plan.
BBC – And the plan.. – oh forget it.
“Made to make your eyes water” Life Insurance Premiums.
Filed under: Avalon's Money Thread, Cost of living, General Budgeting, Retirement, Pensions and Kiwisaver
We are still on the hunt for decent life insurance, given that we had to pull the cover from ING, and would like to pull the cover from ASB as well.
If you are moving here from the UK – whatever else you do – make sure you have Life Insurance and Critical Illness Insurance in place before you leave and make sure you will be covered once you emigrate.
Because I can almost guarantee you will die of a heart attack one you see what you are expected to pay for it here. Its outrageous – a bloody rip off.
I explain this in more detail in the book, but basically – in the UK the premiums are set according to your age when you take it out.
Here they just go up and up and up. And up some more. And then just when you really need it – from about age 65 onwards – you would need to be a multimillionaire to afford the premiums.
We are currently looking for about 1.4m in cover. Now I know that sounds like a lot of money – and possible you might thing it’s a bit arrogant to think that Hubby would be worth this much (I am worth considerably less which is a bit depressing). But this is because we have rental properties, with mortgages on, and they need to be paid off if Hubby croaks).
If we get stepped premiums – which go up every year – then we pay about $1500 a year for the premiums ($125 a month). If you get level premiums (which stay level till age 65 and then “wallop” you with a hike you just would not believe) then we have to pay over $6000 a year ($500 a month). The stepped premium hits a truly bewildering $44,000 a year by the time you get to age 64.($3600 a month).
Compare this to my UK life insurance (which includes Critical Illness cover) costs £10 a month, and will do until the day I die. Even if I’m 127 years old.
We worked out that till age 65 – the difference in payments in level and stepped over that time makes nearly $60,000 more to get stepped premiums.
However our Insurance Broker sat me down and told me I should revisit my views on this – and look at the cost NOW. With our budget being squeezed to within an inch of its life because IBM is too tight to give even cost-of-living pay rises (but can pay $80,000,000 for a new data centre) we simply cannot afford $500 a month on premiums.
So the plan now is to take stepped premiums, and as we pay down mortgages – reduce the cover and thus try and offset the rise in premiums each year. Still – it annoys me that Kiwis so easily get ripped off.
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Why is customer service getting so bad in New Zealand?
Filed under: Cost of living, General Budgeting, Life in New Zealand, Retirement, Pensions and Kiwisaver
Just this last year – companies in New Zealand seen to have gone absolutely doolally with their customer service. As in there isn’t any. Its always been one of the things I really appreciated about life here – that customer service was generally top notch – so much so that it was really noticeable when you got some bad service.
This year – it seems to be a rare as hen’s teeth that companies won’t try and screw you over, and staff won’t lie through their teeth to cover up their mistakes.
I really don’t get why.
I guess this is probably happening the world over – but to be honest – I don’t see why people in New Zealand have to be arseholes just because the rest of the world is. Why can’t we maintain our “reputation” for being good at customer service in the face of a recession (which the people “in the know” say is over anyway)?
The latest stress-inducing idiocy comes from ING Life – with whom we have (or had) life cover and medical insurance, costing us nearly $300 a month in premiums. They slapped an unfair exclusion on both policies – excluding anything to do with our necks. This is because we (foolishly it seems) take a pro-active approach to our health and see an osteopath to reduce the number of headaches we get. Both of us react the same way to stress – our upper back and neck muscles turn to rods of iron, and compress the nerves – both of which cause excruciating headaches. There are a number of ways of treating this – but basically your choices are down bucket loads of strong painkillers, take preventive drugs which will mostly turn your brain to pudding, or go get an osteopath or chiropractor to release the muscles.
One of those options is sensible, effective and leaves your brain operating at 100% rather than being put to sleep by medication.
We have been trying for 5 months to talk to ING about this – and have met the most astounding belligerence and laziness I have yet seen in my time in New Zealand.
All ING have to do is pick up the phone and talk to either our Doctor or the Osteopath. Instead – they want us to waste the time of an Orthopaedic surgeon (who trust me – has better things to do that pander to the twats at ING – like dealing with people who have real injuries), and of course – we have to pay for that – $300 a month in premiums isn’t enough for them to get off their arses apparently.
This is of course for a substantial amount of life cover – we are not talking peanuts here.
Now – ING have resorted to bare faced lying to our broker about what is going on. Apparently – my visits to the osteopath are due to a recent neck injury that I know absolutely bugger all about. Hmmm. They also claim we did not fill out a form for this – only the lazy gits never sent us a form to fill out. Funny how they screwed this up and it’s magically all our fault.
Thing is – if this is how they behave when we are trying to pay them $300 a month – a not insignificant sum of money) – what the hell will they do when it comes time to make a claim???
So Action 1-
We cancelled the life policy and told them to get a grip or risk losing all the business.
Action 2 –
We are about to start the process of finding another home for Hubbys pension fund. Its only about $40,000 – but these bozos are not fit to look after our future money even it was only 5c.
Action 3 –
They have 1 week to fix this mess – or we cancel the medical cover as well. I refuse to give money to people this incompetent and this prepared to lie through their back teeth. It may be a “good policy” on paper – but in fact it isn’t if you have to be treated like shit when you are trying to do business with someone.
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Avalon’s Money Thread: Can I Invest In new Zealand?
Filed under: Avalon's Money Thread, Property & General Investing, Retirement, Pensions and Kiwisaver
This is an area that I’ve personally experienced a big difference in from being in the UK. I’ve honestly been bowled over by the sheer opportunity available here to invest in our future. This is usually outside what I guess would be considered normal in the UK. Many more people “do their own thing” rather than relying on a “pension scheme”.
The main principle of investing for a future is:
PAY YOURSELF FIRST
or
SAVE FIRST – SPEND SECOND.
The aim is to set aside 10% of your income for your future. (Add that to your budget!)
Investing and wealth creation are huge industries here. And something I found amazing was the number of free seminars available. I think you should always be careful about seminars if anyone is pushy and asking you to sign up for an expensive course, walk out. Not that it’s always a bad course but you should “never sign anything” without sleeping on it first! Some seminars you need to pay for but still be wary. If you are the sort of person who easily gets signed up for stuff, don’t go. Or at least don’t take your credit card or you may end up with that much-hated timeshare in Lanzarote! (Which let’s face it – is not going to be a whole lot of help to you once you are in New Zealand.)
Company pensions are available but most companies will not pay contributions into them because they have to pay Fringe Benefit Tax to the government in order to do so. Also, any contributions you make are done after you have paid income tax on the money earned. So you do not even get that tax benefit. Kiwisaver is a new(ish) Superannoutaion scheme which you join automatically when starting a new job, and have to opt out of if you do not wish to be a member.
About the only benefit is that when you finally do take the pension out you aren’t taxed on the income.
A lot of Kiwis seem to go it alone with investment planning and do it with residential property. Property is big; shares not so much as people got badly burned in 1987 and won’t look again. Besides there are nice tax advantages (at the moment) to buying property and holding on to while renting it out. If you want to buy property and “do it up” a la Property Ladder you will get taxed on the profit but if you “buy and hold” you don’t get Capital Gains tax! (Yet)
If you want to get into investing in property, the best place to go is a forum called Property Talk because there’s just too much info and they are active investors.
Do be aware that most people “negative gear” property, which means they make a loss week to week. (We are in this position). This is because the Government pays you some of that money back if you are a taxpayer. But you do need to have spare cash to “prop up” a property if you are going to do this, and it does limit how many properties you can buy.
I will be looking at property for this year but I also invest in shares now. I do this by buying Direct Shares rather than what most people do which is to pay money each month into a Managed Fund. The difference is that I save up $5000 at a time and then decide on a company to invest in, and buy shares in that company. Whereas with a managed fund, I would put say $500 a month into a fund, and then the fund manager takes all the other $500 that everyone else paid in that month, and he picks a load of shares to buy with all that money (having taken some of the money out for fees). I read somewhere recently that if you throw darts at a list of shares you would probably pick just as well as the fund managers do!
Is it risky?
Well yeah, to a point. But I work with a company that advises me on which shares to buy and they use a method called Value Investing. This means ignoring the share price. Most people buy shares because they are “popular” and this means the price is higher. Value Investing means looking at the company and deciding what the company is worth. Then buying shares in that company when the share price is lower than it should be. Basically it’s buying shares at a sale price. It does require education, but then to be honest I’m now a firm believer in the fact that if you want a good financial future, you have to get educated about money. I find it odd that we are not allowed to drive a car without some education but we are allowed credit cards and allowed to invest without it!
We work with a company called Wise Planning But I strongly suggest that if you want to look at this, go to an evening seminar first. The program we did was expensive and you really need to work hard at it and I wouldn’t recommend it for everyone. Be assured that the one thing Wise Planning wont do is any Hard Sell which strangely is exactly why I joined them, so you can be sure your credit card is safe and you won’t end up with said timeshare in Lanzerote!
(Update: Wise Planning hiked thier fees up by a ridiculaous amount, and I now wouldnt recommend them, as the owner of the company was actually quite snotty and rude to us when we objected to a 100% fee hike with no warning. but if the Introductory seminar is still free – then it’s worth going to.)
The main thing that makes investing risky is ignorance. If you don’t understand what you are doing and the exact risks involved, you shouldn’t do it. There has to be an amount of personal responsibility taken for your future so if this is all gobbledygook, then read some and understand it.
Update: We headed firmly aware from share investing and into property, which for me was much more fun, much more interesting, and easier to understand. Ive made a lot of friends along the way, and learned huge amounts, not just about investing. Its worth joining a local Property Investors Association if you want to go to into this – they hold monthly meetings were you can network and learn.
Whatever you do, if you want to invest – make sure you get some advice. A lot of people have lost an awful lot of money in the last few years, and while no amount of knowledge or advice could have stopped all the problems, many people have lost everything because they just “invested” in something without understanding what they were doing or what they were signing.
Avalon’s Money Thread is a series of posts which were originally written in 2007 for an Immigration Forum. They came about by answering questions that forum members asked, about how to cope with the often difficult financial situation they face in New Zealand. They formed the basis of what was eventually to become the book Avalon’s Guide: after another year or so of drinking way too much coffee and finding out way more about taxes, money and investing that any sane person should.
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Kiwis don’t know much about Finance. Who would have thought?
Filed under: Economics, General Budgeting, Property & General Investing, Retirement, Pensions and Kiwisaver
Today is apparently the start of Financial Awareness week. Being made aware of it before it happened might have been an idea – but better late than never. And shock, horror – there’s an article in the Dom Post today about how little Kiwi school children know about financial stuff.
A questionnaire commissioned by the Young Enterprise Trust and tackled by hundreds of secondary school students has provided a damning indictment of financial knowledge levels among New Zealand’s future workers.
Despite the survey being packed with basic themes like compound interest, income tax and GST, returned forms were littered with an alarming number of mistakes only half managed to register eight correct answers out of 40 questions.
Errm – did we need a survey to tell us this? How exactly were they supposed to know the answers about income tax and GST? Who the hell cares when they are at school? It’s just not relevant. Ok, Compound interest is – because it shows you that saving is good and debt is bad, and besides – it should be in the Maths curriculum anyway.
But knowing GST rates isn’t something a school kid really needs to understand. Learning how to handle money: save a bit, spend a bit and keep on eye on your finances – that’s what they need to learn.
It’s a bit worrying that only half managed to get 20% right. Statistically – if you guess at the answers (multi-choice out of 4 choices) everyone should have got 25% correct.
The questions that registered the highest number of incorrect answers centred on credit card interest, the types of investment that return the highest growth over time, and dollar cost averaging.
Now, credit card interest – yep – lets sit down and make sure every student leaves school knowing exactly how bad credit cards can be, and how they are seen as easy prey by the credit card companies once they leave school. This is in my opinion vitally important for them to grasp. And an understanding of investment returns is not a bad idea. I didn’t know what Dollar Cost Averaging was until about 4 years ago when I went to an investment seminar here in New Zealand. I had made use of it in the form of investing in an Endowment fund in the UK, but hadn’t got the foggiest idea that this is what I was doing – or why it was a good thing.
The article is actually rather good, and makes some good points about how we really need to start financial learning at school age. Unfortunately it finishes with whacking adult Kiwis over the head for insisting on investing in Property (which as you know is not actually the case at all). They seem to think we do it because we are too stupid to invest in shares, rather than because we are actually semi-intelligent and weighed up the risks and the benefits and worked out which was better for us. I know that’s what I did. But only after I had the basics sorted. Theres no point in learning about investing if every month you continue to spend more than you earn. Let’s teach people this first.
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Getting out of Credit Card Hell
Filed under: General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ, Property & General Investing, Retirement, Pensions and Kiwisaver, The Book and Website
I am now a firm believer in that you should never had a balance on your credit card that you cant pay off every month. But if you are the position of having a balance you need to find a way of getting rid of it as soon as possible. Credit card debts, especially now – are the sort thing you do not want to have in your financical life.
I was sent a link from one of my Twitter Followers to Mint.com with an amazing diagram showing you one of the ways you can do this. You start at the bottom of the Picture and work your way up to freedom.
This is slightly different to the method listed in Avalon’s Guide – but hey – there is more than one way to turn your life around – and it is up to you to check out which suits you best.
Click on the Picture to go to Mint.com and see the full version:
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