After working in Australia for ten years, I have a fair amount of money locked away in an Australian superannuation fund.
As a resident of New Zealand, I have the ability to transfer these funds into my Kiwisaver account.
I am not going to do this. I haven’t done a detailed analysis, but here are some of the reasons I haven’t made the switch:
- Tax advantages. Superannuation in Australia is concessionally treated from a tax perspective. For affluent Australian citizens, it’s an on-shore tax haven. The tax advantages superannuation affords are ludicrous. While it’s true that Australia taxes capital gains, if I do not redeem any interests and wait until the preservation age (ie, the age I can access my superannuation funds), I believe these gains are tax free. And even before then, capital gains are concessionally treated. To the extent I’m taxed on capital gains, this is likely to be outweighed by the concessional tax treatment of income that gets favourable tax treatment within my Australian superannuation fund.
Kiwisaver, on the other hand, doesn’t provide these tax benefits. (Apart from the government tax credit, which I will be entitled to anyway by making regular contributions to Kiwisaver.) From this perspective, Australian superannuation is a free kick.
- I hold insurance within Australian superannuation. I don’t want to give this up. Also, this is paid for out of my superannuation funds and the returns of these investments, so does not impact my cash flow.
- Regulatory arbitrage. The rules in Australia and New Zealand are different. There may be cases where I benefit from more lenient rules applying to my Australian funds. For example, if I ever need to access funds early. New Zealand and Australia have different rules. If I have funds in Australia and the Australian rules at that time are in my favour, I can take advantage of them. If I need the funds and the New Zealand rules are better, I can always transfer funds.
- Having funds in an Australian superannuation provides me with added flexibility from an estate planning perspective. Australian superannuation funds do not automatically become an asset of your estate, in the same way that a Kiwisaver fund does. So if my circumstances ever get more complicated (not just because of relationship changes, but also if I have a child with special needs, for example), I will have an additional tool in my arsenal.
A lot of financial institutions advertise the following benefits, which I find unconvincing:
- Reduced fees. However, in both of my funds the majority of fees are charged as a percentage of funds under management. So the double up between funds is minimal. It’s maybe $50 or $100 a year.
I haven’t looked into this in detail, but I suspect that I’m also likely to pay less in fees overall because there is greater scope for an Australian superannuation fund to charge lower asset-based fees than a New Zealand Kiwisaver fund. The reason? Economies of scale. The administrative and regulatory costs associated with running a managed fund (superannuation/Kiwisaver or otherwise) do not increase linearly with funds under management. The fixed costs of running a $10 million fund are not as different from the costs of a $100 million fund or a $1 billion fund as you might think. Australian superannuation has been around longer, has greater incentive for people to contribute into superannuation, and Australia has a a bigger population. There is greater scope for funds to have more members and more funds under management, and the ability to lower costs across those members.
- It’s simpler to get information about my superannuation/Kiwisaver funds if they are with the one provider. In reality, it’s the difference between one login and two logins. Also, these investments are looooooooooong term investments. Is it useful or healthy to be checking my balance on a regular basis? No. These investments are fairly aggressively invested and will be volatile over the short- to medium-term. So being able to check my balance easily and on a regular basis isn’t really a benefit at all.
So. Those are some of my personal reasons for keeping my Australian superannuation funds in Australia. I’ll confess, that I haven’t investigated this in significant detail, and I’m very happy to be corrected. But until I have a compelling reason to do so, I won’t be shifting my Australian funds into Kiwisaver any time soon.