NZ News

The investment industry has given the thumbs up to the New Zealand Government's anti tax avoidance measure on contributions to employer superannuation funds.

The investment industry has given the thumbs up to the New Zealand Government's anti tax avoidance measure on contributions to employer superannuation funds.

Early this year, finance minister Michael Cullen opened a loophole for high in-come earners to avoid the new tax rate of 39 per cent on income over $60,000 by contributing to employer super funds taxed at 33 per cent.

However, in order to counter abuse of this loophole, Cullen has announced a 5 per cent fund withdrawal tax for any money taken out of super schemes before re-tirement unless an employee is leaving their job or can claim hardship.

"It will be an effective anti-avoidance measure, without adversely affecting em-ployers, superannuation funds or people who are genuinely saving for retire-ment," Cullen says.

He says the Government will also announce measures to halt avoidance of the new income tax through family trusts, companies and partnerships.

Head of the Investment Savings and Insurance Association (ISI), Vance Arkin-stall, says the new measure will encourage long-term savings.

"The Government's announcement represents a sound balance between encouraging high income earners to save through employer superannuation and protection against abuse of the taxation system. The approach is simple and it will assist to increase genuine superannuation savings by higher income earners without loading additional costs and complexity on employers," Arkinstall says.

He says the ISI is pleased that earlier anti avoidance proposals, such as a cap on contribution levels, were not adopted as they would have limited contribu-tions and burdened employers with compliance costs.

The Government move has also received the thumbs up from managing director of Armstrong Jones, Paul Fyfe.

"The Government has shown it is serious both about encouraging New Zealanders to save more, and offering a structure that simply and effectively discourages tax evasion," Fyfe says.

He also welcomes Cullen¹s indication that the Government will now look at ways of removing the tax discrepancy on superannuation schemes for low income earn-ers.

Currently all super schemes are taxed at 33 per cent which is above the marginal tax rate for those earning under $38,000.

The previous Government's attempt to tackle this issue collapsed last year when it failed to gain enough support in Parliament to pass the so-called TOLIS leg-islation.

However, removing the disincentive for low income earners to save has remained a goal for the industry.

Fyfe says the new moves by the Government to regenerate employer super schemes will significantly boost New Zealand's savings record.

"The easiest way to encourage people to save is by having money deducted straight from their salaries into registered superannuation schemes that are de-signed to facilitate long term saving - principally for the purpose of retire-ment," Fyfe says.

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Small investors are slowly returning to the New Zealand share market, lured by attractive dividend yields and the more promising profit prospects, according to figures compiled by JB Were.

Retail investors own 22 per cent of the share market at the end of last year, up from the mid to high teens in 1997, the firm's latest annual review of the mar-ket's ownership structure shows.

"The level of interest from retail investors has been drifting up during the 1990s, after they fell sharply following the 1987 crash," says JB Were economist Bernard Doyle.

The J B Were review shows total overseas holdings dipped slightly last year to about 55 per cent of the share market.

Though some substantial portfolio managers had sold or reduced their New Zealand holdings, they were largely replaced by foreign corporate investors chasing strategic stakes.

These strategic holdings by overseas companies stood at 27 per cent of the share market and other overseas investors, such as portfolio managers, held 27.5 per-cent.

"Last year there were a lot of portfolio investors shifting out of New Zealand for reasons relating to economic performance and profitability performance," Mr Doyle said.

"So far this year, we've seen a further indifference by overseas fund managers toward New Zealand, but that has been tied in with a global move from so-called old economies to new economies."

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After months of delay, the Office of the Retirement Commissioner (ORC) has re-leased its marketing campaign encouraging employers to help their workers with financial planning.

The Retire at Work campaign was originally scheduled for launch in the middle of last year but has taken longer than anticipated to implement.

Retirement Commissioner Colin Blair says the reluctance of many in the industry to help fund the scheme was one of the reasons for the delay.

"Many companies expressed concern about freeloaders benefiting from the campaign and felt they would rather put their marketing dollars into their own products. Some also felt the Government should fully fund all the activities of the ORC," Blair says.

"However, the Retire at Work campaign was welcomed by all as a good idea."

Currently the Bank of New Zealand, Tower, Royal & SunAlliance and the New Zea-land Stock Exchange are co-sponsoring the program.

An initial three week media campaign has begun with a repeat planned a month later.

The ads encourage employers to contact the ORC for a video-based financial plan-ning kit to present to their employees.

"Employers decide how far they want to go. They can contact the sponsoring com-panies or other financial service firms to help but nothing is being imposed on them," Blair says.

He says the response so far has been encouraging with close to 10 employers con-tacting the ORC in the first day of the campaign.

Employers pay about $10 per employee for the presentation kit that includes the video plus a package of information for each worker.

"Our research has shown that the cost doesn¹t appear to put off employers who are prepared to help their staff plan for retirement," Blair says.

The Retire at Work campaign marks the end of the ORC's immediate formal program but Blair says there is still plenty to do in promoting and educating the public about retirement issues.

He says the ORC still has the backing of the Government despite speculation it was to be wound down.

"The Government has given no indication it will reduce its current level of sup-port. There's still a job to do but the debate will centre around the nature of that job."

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The investment industry has expressed dismay at a new takeover code likely to be implemented before the end of the year.

The code, based on the previously sidelined 1995 Takeovers Code which in turn was modelled on the Australian takeover rules, has been put before the Takeovers Panel for consultation on technical amendments with interested parties.

Commerce Minister Paul Swain says the primary aim of the code is to prevent con-trol of a company shifting by the transfer of a minority share block without the participation of other shareholders.

"The Government intends to implement a takeovers code as soon as possible to en-sure that small investors get fair treatment in takeovers situations and to im-prove overseas perceptions of our market," Swain says.

"The consultation is on technical aspects of the code, it is not on whether there will be a code."

However, reaction from industry groups has been largely negative with the New Zealand Stock Exchange (NZSE) and several fund managers coming out against the code.

Managing director of the NZSE, Bill Foster, says the New Zealand market doesn't need more regulation but just more cost-effective enforcement of current rules.

Head of New Zealand equities at AXA, Andre Bascand, has expressed horror that the Government would even consider adopting the code.

"The Government will impose these takeover laws because they perceive the lack of them is limiting our market," Bascand says.

But I am extremely concerned that the code w