KEY POINTS:
Fancy paying less tax on your term deposit or trading in and out of a major telco without being penalised on the capital gains?
The solution could soon be on hand with a raft of innovative investment products expected to hit the market over the next six months as the industry revs up in response to savings growth.
More than $41 million will pour into the managed funds sector this month alone through KiwiSaver and further boosts are expected on the back of compulsory contributions from employers starting in April next year.
At the same time changes in the form of portfolio investment entities (PIEs) have levelled the playing field for managed funds putting them on the same tax footing as direct investment in shares and property.
AMP savings and investment director Roger Perry said one of the benefits of both the PIE and KiwiSaver changes would be greater innovation.
"We may see some novel structures and niche type products."
In particular Perry predicted the first products would likely target investors at either the low risk or higher risk end of the market using the tax benefits of PIE.
One area which may be the first to see new products pop up in is cash investments. Currently they are subject to resident withholding tax at 33 per cent but if the money was invested in a cash PIE it could be taxed at an individual's PIR or prescribed investor rate.
Perry said this could be particularly beneficial to retirees who are taxed at the lowest rate of 19.5 per cent on their government superannuation but often have additional savings in the bank which are hit by the higher tax rate.
"They could have up to $200,000 invested and still pay tax at the lower rate," he said.
Westpac is widely expected to be the first to enter this market and other major trading banks are likely to follow suit in February or March.
At the higher risk end of the spectrum there may also be PIEs which invest in a single company such as Telecom.
Perry said this could be advantageous for those who want to trade in Telecom shares without being stung by capital gains tax as PIEs are exempt from paying capital gains on New Zealand and most Australian listed shares even if they trade in them frequently.
One of the key areas AMP is looking at is launching PIEs which invest in socially responsible companies.
"They [socially responsible investment portfolios] can be more volatile but it's an area we think New Zealanders will have an interest in."
