One reader wants wealthy boomers to give generously to charities this Christmas. Photo / Ekayuth & Sarayuth Punnasuriyaporn
Q: I’m a boomer who has received a significant tax-free inheritance and has also benefited from untaxed capital gains. I expect my estate will eventually distribute considerable funds when I die, and I’m happy that tax might be applied to large inheritances and/or capital gains.
Yes, I’ve worked hard all my life, blah blah blah, but I’m also conscious of the increasing divide between rich and poor in New Zealand. I suspect many younger boomers have already inherited significant tax-free funds and they will eventually pass much of that money on to the next generation.
It would be great if a small fraction could be redirected to worthy uses, eg health services. The younger folk will still receive the vast majority of their inheritance.
PS – I hope wealthy boomers give generously this Christmas to their local charities who provide much needed joy to struggling families.
A: After several correspondents have said, “Don’t tax my money”, it was refreshing to receive your email. I’m sure you’re right – inherited money has increased the gap between rich and poor, especially since house prices have soared. Taxing a small portion of it makes sense.
Thanks for ending this “debate” on a generous note at Christmastime.
Q: I wish to comment on a couple of points in last week’s Q&A on means testing NZ Super:
· I very much question the statement that NZ Super costs are low and projected to stay that way – this does not make sense when you look at our population demographics.
· You also state that people on higher incomes pay a higher rate of tax on Super. Whilst it is true that the source PAYE deduction from NZ Super is higher for people with other income, it is not true to say they pay more tax, as at the end of the day they pay tax at rates that apply to all NZ tax residents. (I am a qualified accountant who oversees filing of numerous tax returns so do know what I am talking about here.)
A: Your first point refers to a quote from Retirement Commissioner Jane Wrightson on NZ Super: “New Zealand’s expenditure on its pension is both relatively low compared to other OECD countries and projected to stay there.”
I asked the commission to respond to your comment. Here’s what they say: “While the population in New Zealand is ageing, this is not happening as quickly as in many other countries. The simplicity of our retirement income system, eg without expensive tax concessions for savings, means there aren’t hidden costs to the government.
“OECD data show that our spending on NZ Super is equivalent to 5.1% of GDP (gross of tax). The OECD average is 7.7% of GDP. The NZ figure is expected to rise to 7.7% (gross of tax) of GDP by 2060, compared to a 10.3% OECD average.
“This means future spending in NZ will still be lower than what many other countries spend now. In addition, as NZ Super is taxable income, the net spend on NZ Super as a percentage of GDP is even lower.”
I think there’s a lot of unnecessary worry about the future of NZ Super – perhaps fed by people reading about the situation in other countries.
On your second point, it depends how you look at it. If we compare Jack, whose only income is NZ Super, and Sally, who receives a salary as well as Super, Sally’s Super payments will be lower because more tax is deducted. And, assuming the tax on her salary is set up properly, she won’t get that money back.
We should note, too, that some people over 65 on lower incomes receive extra money from the government. About 13.4% of superannuitants receive a disability allowance, 5.3% receive an accommodation supplement, and 1.4% receive temporary additional support or special benefits, says the Ministry of Social Development.
Some also receive a Veteran’s Pension. And many pay lower health costs by using a Community Services Card. For more info, and how to apply for all of these, see tinyurl.com/SeniorsPayments.
All over 65s also receive the SuperGold card and Winter Energy Payments – unless they don’t apply.
I’m not saying some elderly people are not struggling. Recent reports say many are, and that’s a big concern. I’m just saying they can receive considerably more government money than those on higher incomes.
Q: I wanted to stay out of the discussion about NZ Super, but I can’t! The pontificating by some correspondents is too much.
One supports means testing NZ Superannuation because Australia does. What they fail to mention is Australia has had compulsory superannuation since 1992. Current compulsory contributions are 11.5% of income, soon to move to 12%.
We don’t have that, so your correspondent favours rewarding the frivolous (no I don’t mean beneficiaries) who can but don’t save much, and punishing those who did.
I lost 95% in the 1987 share market crash. My first house’s valuation dropped the first few years. I’ve been made redundant. Twice. So I’ve had setbacks. But I used every savings opportunity: workplace super, KiwiSaver, invested those redundancy payments. I saved hard. Deliberately.
After 40 years I’ve just retired at 62 because I worked for it. No one has the right to tell me what I deserve or that I didn’t work for it. The rush of people in this country to tear down others disgusts me.
A: People actually have the right to tell anyone pretty much anything! But you also have the right to disagree.
You’ve put the anti-means testing case well. And the next correspondent adds to the argument.
By the way, one reader wrote criticising “giving away NZ Super to those who don’t need it and sometimes don’t want it”. But nobody has to receive Super. You simply don’t apply for it.
Question: Another really great reason why means testing Super is not a great idea can be seen by looking at the New Zealand employment participation rate of 71.7%.
The Australian equivalent is 67%. Surprisingly (for most people), New Zealand is actually a participation rate star.
The main reason for the New Zealand/Australian difference is because Australians quit work when they become eligible for Super – because if they work, they don’t get their Super. If you don’t believe this, try to get a campsite in Australia in the cool season!
So Australian retirees cost the country their Super, and the state gets no tax back. But in New Zealand, superannuitants keep working (hence our high participation rate). They collect their Super as well - but they are taxed on this at their top tax rate, and they keep paying tax on earnings. So most working superannuitants basically end up paying their own Super. They don’t cost the state anything.
A: That’s an interesting way of looking at it.
For accuracy, Australians can actually work – perhaps part-time – and still get an age pension. But their income and assets have to be less than fairly low cutoff levels.
Still, many Aussies do keep working after 65. Their income is probably considerably higher than the pension they miss out on – and perhaps they also enjoy their job. To get a clearer picture, I dug out some numbers on work participation for people 65 and over.
About a quarter of over-65 New Zealanders are in the workforce – which includes people regularly working one hour or more a week or actively seeking work. In Australia it’s about 15%.
When we look just at those aged 65 to 69, about 44% of Kiwis work, compared with about one-third of Australians. In both countries, the numbers keep increasing.
As you say, New Zealand has one of the highest workforce participation rates in the world – for all age groups and for older people. And perhaps you’re right, that one reason older people continue to work is that they still receive NZ Super, even though tax reduces it.
The next question is whether they take jobs from younger workers?
When we look at individual positions, sometimes yes. But the more 65-pluses are employed, the more they create demand for goods and services. They have less time to do their own chores than if they were retired, and they have more money to spend. In total, the trend might mean more jobs for younger people.
Q: I have very much enjoyed the debate about the rich man wondering if he can retire.
Maybe he fears that if he stops work he will lose social interaction with other staff. He might want to get a copy of Avoid Retirement and Stay Alive by David Bogan and Keith Davies.
I am 79 and tried retirement about six years ago and just got on my wife’s nerves in the kitchen making cups of tea. So I went back to work part-time and still do about 15 hours a week at whatever time suits me. He should keep going into work with fewer hours and start to enjoy retirement.
A: Yes – keep out of that kitchen!
Another reader suggests the man volunteers for a charity. “Volunteering his services would not only occupy some of his free time, but also offer him a glimpse into the lives of so many people who are poor or struggling, often through no fault of their own. An eye-opener into ‘how the other half live’. This person is definitely in a position to do something worthwhile. I hope he does.”
Q: Time to resign Mary. You are a dangerous non-factual “adviser”. I can’t even begin to call how many times you have ducked for cover, hidden or misrepresented real economic advice. Print this, I dare you.
A: It’s hard to resist a dare, and I pretty much always run critical letters, and always correct any errors I’ve made. The trouble is, I don’t know what you’re talking about.
I promptly replied: “Thanks for your email. Can you please give me an example of a time when I have ducked for cover, etc? Thank you. Mary”
More than five months later you haven’t got back to me.
By the way, I’m not an adviser, factual or otherwise, but a journalist.
Q: I read your column where you suggested making voluntary contributions to KiwiSaver. I’ve stepped out of fulltime employment to care for my elderly mother and I’m now reliant on a carer’s allowance for my income. That’s about a third of what I was previously earning. Fortunately, I’m debt free and have no other significant costs, but I have been really concerned that my KiwiSaver contributions (previously at 10% because I’m in my late 50s) have stalled. It just didn’t occur to me that I could set something up myself prior to reading your column.
I’ve now looked into it with my provider and it’s very straightforward, so I’m getting that under way today. Thank you for the suggestion.
A: It’s great to know that Q&A helped you. Of course you miss out on employer contributions, but you do get the government money, and your regular contributions will grow your balance.
Good on you for looking after your mum.
Among other much appreciated kind comments I received this year was this one:
“I have been buying the Saturday Herald for many years so that I can read your column. I think you give credible, sensible advice on a range of topics: paying down debt, mortgages, retirement, laddering and term deposits to name a few.
“Your column has helped me become financially literate and make good choices. I would just like to say a very heartfelt thank you.”
Another reader described how, after leaving an abusive marriage years ago, with a child, she was struggling. One day she read a letter in the column from a woman in a similar situation.
“The advice you gave was not at all what I expected. You said, ‘you’re doing everything right, now go out and have some fun’.”
This inspired the reader to take part in some volunteer work, which led to a job and, after several promotions, a high salary and a paid-off mortgage.
She is now saving hard, but “I’m not worried about my retirement. That was the other thing you said in your column which delighted me. You wrote that some people find that they are better off in retirement than they were when they were working.
“I’d never thought of that and did some calculations. When I deducted all the costs that I would no longer have in retirement (mortgage, work travel costs, life insurance, school fees, etc) I realised I was actually living on less than the Super. Having that knowledge was incredibly liberating!
“So thanks Mary. I’m excited about all the fun ahead.”
I hope every reader – including the one who wrote the nasty letter – has some fun over the next few weeks, and for that matter into next year. A big thanks to everyone who has written to me, especially those whose words didn’t make it into the column. It wouldn’t work without all the input. See you again on February 1.
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
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