KASPANZ MEMBERS NEWSHEET 28: 2022 Kiwi saver |Annuity Superannuation | Protection Association of NZ.
Hi everybody
KASPANZ was formed in February 2013, and we continue to enhance our reputation with our regularly refreshed website with retirement income articles and comment. The Consumer voice has to be heard, the economist voice, and a limited diet of individual commentators of various worth, needs additional stimulus and Kaspanz tries to provide that through information and influence.
Remember to click onto our website www.kaspanz.com on a regular basis to see what’s there, and remind friends and associates. We like supporters to join Kaspanz, and this is easily done on the home page.
You can also get free updates of new website information per e-mail alert. Look for the home page icon. The site posts new articles weekly, and we welcome comment. See the disclaimer at the end of the newsletter re content!
EDITORIAL
I was recently asked, what is the Kaspanz position on NZ Superannuation post Covid, with general economic rising costs. This was my brief e-mail reply. It is not a presentation paper. Just thoughts from the head and the heart, keep it simple!
Re NZ Superannuation .
Kaspanz has always adopted the approach, we need to recognize that NZ Super in its current form, is sound Public policy, no other alternative policy proposal has come close. Minor tinkering, we would accept, but oppose any significant change.
We remain strong that an adjustment in thinking is required by New Zealand commentators, that this country has a very sound policy platform in place with NZ Superannuation , possibly the best in the world. We need” to “praise it and delight in it”
| Its the best. Top Class. Rejoice. Better than anything else. Nothing matches it. Good Policy |
rather than mess around with it. We see NZ Super as being around for our Children and their children, and it’s very sustainable.
We are strong on universality and totally opposed to means testing. We strongly believe means testing is simplistic rubbish, means testing is not only administration costly, it has real problems in accurate targeting, For a start to be viable, all current trusts/asset protection needs to be done away with, so genuine income (all) can be seen, taxed and distributed. That removal is unlikely, therefore means testing is a non-starter.
Remember those benefiting from income Trust protection, are often the first to call for means testing. Be aware of the Wolfe in sheep’s clothing!
Susan St John and Dr Claire Dale have done some excellent work on alternatives, part of any debate, but politically unlikely to fly, and therefore somewhat dangerous, because what’s not required is a piece meal approach, which satisfies nobody . A question we would also ask is can you look at NZ Super on its own, Kiwi Saver is part of the equation too, one without the other, produces potential problems.
We also challenge strongly the assumption it’s too costly or unsustainable for that reason.
Despite most OECD countries pension schemes being far more costly, and far more complicated (Aussie) a range of NZ commentators bring out this issue on a regular basis. Why do they do that, it’s a fascination with change for change’s sake, and a lack of policy analysis in any wholesome fashion. I shake my head in frustration at the lack of knowledge of what’s happening in Scandinavia, Denmark, Norway.
The sustainability issue is actually a Taxation issue. We need a land tax, a wealth tax for those with income above $200,000pa, also investigate inheritance tax. We also need to implement a more sustainable training focus including penalties for people not accepting work offered or skills training.NZ has become very Laissez-faire, since the 1970’s, its costing us in many ways. Leave NZ Super alone, it’s the only real working component that’s functioning at capacity .
Focus instead on the other areas that need addressing, the areas which are increasing the gap between rich and poor. That is not NZ Superannuation.
LIFE EXPECTANCY
The Trend is changing, and with both obesity, diabetes and dementia on the trending move upwards, both quality and length of life is under attention. Due to Technology, one is kept alive longer, but for many those last 10 years will always be difficult, and the trending age of later death, is perhaps starting to change.Life expectancy continues to increase, although the change over time has slowed, Stats NZ said recently .
Life expectancy at birth for the population as a whole is 80.0 years for males, and 83.5 years for females, based on death rates in 2017–2019. Life expectancy for males has increased by 0.5 years since 2012–2014, and by 2.0 years since 2005–2007. Life expectancy for females has increased by 0.3 years and 1.3 years over the same time periods.
“While life expectancy is still increasing, the increase over the last few years is smaller than in the past,” population estimates and projections manager Hamish Slack said. Increases in life expectancy were highest in the late 1980s to early 2000s”
Overseas data trends (UK/AUST) show a decline, consistent with the above trend.
OBESITY ‘EPIDEMIC”IN EUROPE
60% of adults and 33% of children in Europe obese and overweight. The USA is reporting 74% of Americans over 20 are obese/overweight. These figures from the World Health Organisation 2022.
New Zealand mirrors many of the above facts, inevitably they will impact longevity and life quality. The trend of the last 3 decades of increasing life expectancy is turning and starting to decline. For those 30-60 years out from retirement, it will affect their income calculations.
DUNEDIN STUDY 1975 ONWARDS.
Two interesting observations, from this ongoing study. New parents should offer unconditional love to their children, and set boundaries. Relate this advice to social media platforms, technology use, and household rules for children/teenagers!
MUM AND DAD: INTERGENERATIONAL SUPPORT
Kaspanz has been saying for years, that parents are supporting and subsidising their youngsters into housing, offering free rent and providing the majority of child support. Some of this is at the expense of their own retirement savings.
Collected Data is not always factored into the element above, its needs to be recognized in income assessment and affordability.
2022 Consumer NZ research shows
The Bank of Mum and Dad plays a sizeable role when it comes to helping young home buyers on the property ladder, ranking fifth after ANZ, ASB, Westpac and BNZ when it comes to owner-occupier loans. The Bank of Mum and Dad (BOMD) has doled out a whopping $22.6 billion in loans.
Consumer NZ research found that 14% of all families have supported their kids financially to buy a property and assisted them with an average contribution being $108,000. This equates to roughly 208,638 parents. The most popular form of assistance was contributing towards a deposit, with more than half (61%) of parents helping in this manner. Three out of five parents don’t expect to be repaid.
In 2002, the average house price in New Zealand was $186,000, which was six times the average income of $29,432 per year. Fast forward 20 years to 2022, and the median house price has risen to $890k, which equates to more than 15 times the median income of $56,836.
“We’ve reached a point in New Zealand where it’s no longer enough to do all ‘the right things’ to buy your first home – to get a job with a good income, save furiously and cut back on the ‘nice to haves’,” said Gemma Rasmussen, head of campaigns and communications at Consumer.
“The role of the Bank of Mum and Dad is more pivotal in the first home buying process, but it also means that we’re seeing a greater social divide of who gets to buy a first home, and who does not.“The overwhelming majority of parents (87%) either offered to or were happy to help get their children
SNIPPETS
Housing Stats.
Following the median rise in housing prices in the 2019/20 year of over 20%, this was topped by the 28.7% Real Estate institution) over the year to June 2021. These figures are astounding, and further increasing the equity differences in our communities. The Reserve Bank comments “The rise in NZ House prices since 2008 exceeds that of all other economies in our sample”.
Housing stock in the hands of investors increased 191% (BBHTC-Building Better Homes and Cities National Science Challenge) in the period 1986-2018. The market is now a property market, rather than a housing market. Capital gains the driving foundation. This newsletter continues to maintain that a large correction is both necessary, equitable and manageable, be wary of real estate commentators, who benefit from increasing prices.
Politically the “do nothing approach “still reigns supreme over introducing new taxation or Capital gains tax or a land tax, or making adjustments to savings regimes or adopting methods to advantage a lower housing cost market. “We are not going to have people living in slums while there are workmen capable of building decent houses. We have visions of a new age, an age where people will have beauty as well as space and convenience in and about their homes”. Michael Joseph Savage 1936
*Editor Note. In the 1930’s average house size in NZ was 81sq metres, 1970’s just over 120 sqm, 2010 over 200 sq metres plus , currently about 180 plus sq metres. Expectations on size and increasing facilities for residential houses, have continued unabated over many generations
Gender and Aging .
The British Centre for Economic Research reports “Women get $184,000 less than men in retirement”, and women need to work an extra 14.5 years to catch up. Men are also winning the age stakes, with a recent international report stating old age is far easier for men, they are seriously ill for fewer years, wealthier and more likely to be in secure jobs .
Lead researcher Chen a Fellow at the University of Southern California Chen and fellow researchers created an “Aging Index” using information collected between 2015 and 2019. This data came from 18 member nations of the Organization for Economic Co-operation and Development (OECD).The index measured five domains associated with successful aging societies: well-being, productivity and engagement, equity, cohesion, and security. The team calculated the index and domain scores for men and women. They then compared the scores between sexes and nations. Germany, United States and the United Kingdom results all significantly favoured men.
RETIREMENT COMMISSION PAPER 2021 (02)
NEW ZEALAND SUPERANNUATION
NZ Super performs well against OECD indicators and is highly effective in preventing elderly poverty. The good performance of the NZ pension scheme against OECD indicators is a result of the rate and unconditionality of NZ Super.NZ Has the highest non-contributory residence-based benefit out of the 9 OECD countries that have such a benefit and the highest basic pension overall.
The Super Fund will be meeting 10% of the net cost of NZ by 2066
As of 2018 the average retirement age across the OECD was 63.5 yrs. for women and 64.2 for men.
KIWI SAVER
40% of Kiwi Saver members were not contributing at the end of 2020
Kiwi Saver is not mandatory, so the risk of insufficient savings falls on the individual and is not guaranteed by the government or private provider. The individual, after gaining access to their Kiwi Saver at 65, has full discretion over the funds. They could spend the lump sum, bank the funds, maintain a Kiwi Saver balance, or invest in alternative financial products, including those with higher risk. There is no mandatory or recommended annuity product.
SAVING KIWI SAVER: WHY CONTRIBUTIONS MATTER MORE THAN FEES.
Editor : David has always been consistent in his view that the returns after fees and tax are the real issues. I hold a very different view. Fortunately, fees are now lower in 2021, after decades of overcharging, so for the consumer improvement is occurring.
investmentnews.co.nz/sponsor/saving-kiwisaver-why-contributions-matter-more-than-fees/David Boyle, Head of Sales & Marketing, Mint Asset Management
Fees have been in the spotlight recently but Mint head of sales and marketing, David Boyle, explains why we need to dig deeper to understand what is really stopping Kiwisaver members from saving… Kiwisaver fees have hogged the headlines more than ever over the last year, sparked first by the Financial Markets Authority (FMA) ‘value for money’ crusade in 2020 before culminating in the Ministry of Business, Innovation and Employment (MBIE) default scheme announcement last month.
The regulator, of course, has a duty to monitor fees under its mandate to oversee KiwiSaver (and the broader licensed funds market) while the government itself has had a specific interest to see management fees come down, especially given the allocation of free new customers to the default providers. The writing was on the wall when MBIE’s tender document for default providers came out last year with a 60 per cent weighting to fees – a point not lost on a number of newly appointed providers. The key, though, in a lower-fee world is whether the default providers can still adequately service their new members, but more on this later.
The just-completed default review has squeezed the sticker price for managing a balanced Kiwisaver portfolio to between 0.2 per cent and 0.4 per cent – all without fixed annual member fees. If we compare this with our Aussie neighbours who have over A$3 trillion under management and charging on average 0.7 per cent in management fees, you could say it was an incredible feat.
Announcing the new default scheme terms, Commerce Minister David Clark said: “We’re sending a clear message to Kiwisaver members that the government believes they deserve much better bang for their buck.”
Now with the fee argument settled, well at least for the moment, the time has come to focus on far more systematic problems with Kiwisaver – most notably, the high proportion of non-contributing (and under-contributing) members. We also need to ask whether Kiwisaver schemes have the resources to properly assist members during market volatility, in particular, preventing unwise switching to conservative options amid market downturns as occurred post the COVID-19 crash in 2020.
While the government has achieved the reduction of default fund fees down to bargain basement levels, Kiwisaver members deserve more attention on other ways to maximise their bucks over the long term: costs are just one side of the equation – asset allocation, investment returns, advice and contribution behaviours are all likely weightier factors in this calculation. The FMA 2020 Kiwisaver report categorises about 1.2 million members as non-contributors, or about 40 per cent of the total 3 million plus New Zealanders signed up to a scheme.
During my stint at the Commission for Financial Capability now called Te Ara Ahunga Ora, research from the Inland Revenue Department (IRD) found about half of all Kiwisaver members had not even heard of the member tax credit (MTC). If 1.5 million Kiwisaver members are not aware of the prospect of $521ish in ‘free money’ each year for making the minimal $1,040 contribution then there’s something wrong with the marketing machine.
In the 2016 financial year about 1.1 million members missed out on the full MTC including about 580,000 who received no government top-up at all. I suspect the MTC dial has not moved very far since. The data suggests that roughly a third of all Kiwisaver members are contributing less than $20 a week to save for their retirement. Government, regulators and industry have long been aware of the contribution catastrophe in Kiwisaver and, to be fair, all have attempted in one way or another to bridge the gap.
Clearly, we have failed so far. With fees now dealt to, perhaps we need to flesh out a better understanding of why New Zealanders are not contributing to what is actually a pretty cheap, effective retirement saving scheme for most New Zealanders. With little in-depth research to call on, we can only make assumptions about what is keeping Kiwis from making full use of Kiwisaver, however, there are some obvious contenders including those that are: unemployed;, self-employed; children; or, on contribution suspensions or using hardship withdrawals due to genuine affordability issues.
By my reckoning, though, the above factors don’t account for the full 1 million plus Kiwisaver members on low, or nil, contribution rates. I suspect that a kink in the NZ employment law could be another, over-looked, reason behind the missing Kiwisaver contributions. Under the legislation, the intent was for employer contributions to be on top of employee’s salary or wages. However, due to significant lobbying at the time, the law was amended to allow employers to negotiate deals in ‘good faith’ with employees to include employer Kiwisaver contribution calculations as part of a total remuneration package.
Employees opting for a total remuneration approach can choose to contribute the allocated extra amount to Kiwisaver or use it for other purposes. On paper, the total remuneration method offers great flexibility while maintaining pay equity between all employees whether they contribute to Kiwisaver or not. It would be interesting, though, if IRD were to audit companies to compare the total remuneration of both contributing and non-contributing employees. Would those non-contributing employees be receiving 3 per cent more in salaries than their non-contributing colleagues?
More importantly, many New Zealanders now work on a contract basis, which exempts employers from including Kiwisaver as part of the bargain, although a savvy contractor might negotiate employer contributions as part of an overall pay rate. Anecdotally, via my Radio Live show ‘Your Money’, in a number of extreme cases a few years back some employers just didn’t mention Kiwisaver at all.
Most NZ firms are no doubt responsible employers who see Kiwisaver as part of an overall employee well-being program and comply with their obligations. Until there is detailed information available on why so many enrolled members are not contributing to Kiwisaver, we can only guess at the reasons why.
Post the government announcement in May, Minister Clark said that on average an 18-year entering a default fund today under the lower fees’ regime would save about $3,900 by age 65, which equates to about $80 a year. Although, in inflation-adjusted terms the real fee saving amounted to around $2,400 over a 47-year Kiwisaver-contributing lifetime – or $50 a year.
The government and regulator have put a lot of effort into reducing Kiwisaver fees, which as we can see above will help to some extent. However, in the broader scheme of things the fee reduction is just a drop in the bucket compared to the long-term compounding effect of full employee and employer contributions. At the very least, all Kiwis should be contributing at a level to receive the MTC, which collectively adds $1,500 plus each year to member accounts (excluding the impact of investment returns).
After completing its fee investigation, perhaps government – with a little help from the industry – can now do more to find out why such a large percentage of KiwiSaver members are not making the most of contributions. With better understanding of this problem, providers could find more effective ways to communicate with the non-contributing population and, ultimately, improve the retirement prospects for many more New Zealanders.
Disclaimer: David Boyle is Head of Sales and Marketing for Mint Asset Management Limited. The above article is intended to provide information and does not purport to give investment advice.
INTERNET ACTIVITY AND CONNECTIVITY
| No access!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! |
The 2018 census revealed 10 per cent of New Zealanders – more than half a million people – don’t have internet access. Talk back radio also reveals, poor reception in many rural areas, meaning “quality of connection “is a significant issue
A number of groups are also prone to relatively low access to the internet, including:
- people living in social housing
- people with disabilities
- Pasifika
- Māori
- people living in larger country towns (10,000 to 25,000 people)
- older members of society, particularly those aged over 75 years
- unemployed people and those not actively seeking work.
The first two of these groups – those in social housing and people with disabilities – appear to be particularly disadvantaged with respect to internet access. Pasifika students (in 2015) also reported substantially lower rates of internet access than did students of other ethnicities. Just 69% of those living in Housing NZ (or local equivalent) social housing report having access to the internet, compared with 91% reporting access across all respondents (in the 2017 NZES).
Only 71% of people with disabilities report having access to the internet (in the 2017 NZES). In the 2018 NZCVS, 17% of people with disabilities indicate having no internet access compared to the full sample where just 5% have no internet access.
These large gaps in internet access for those who live in social housing and for people with disabilities are potentially amenable to policy interventions. Most social housing is owned by the state, local authorities or NGOs. The social housing provider could take the initiative to install WIFI (or other technologies) to enable internet access by tenants. Provision of such infrastructure may be considered of similar importance to provision of water, sewerage and electricity to these tenants. Such provision is also likely to improve internet access rates for Pasifika students.
Similarly, many people with disabilities are already subject to some form of care by state agencies or NGOs. These authorities may consider enabling internet use for their clients as a key intervention to improve the opportunities for those with disabilities to connect with the rest of society. People with disabilities are also at greater risk than others from an internet violation (such as a virus infection or other internet interference). Other at-risk groups include individuals who are not actively seeking work, unemployed, Māori, Pasifika, younger people, and those who are studying.
*Editor comment : All of this relates to Banking access, Covid 19 Apps, vaccine advertising, which seems fixated on Website applications, not understanding that equity is not occurring or available. Policy makers seemingly are unaware of the hundreds of thousands of New Zealanders either without, or poor reliability access to electronic connectivity. This impacts financially across the social fabric of New Zealand.
FAMILY SUBSCRIPTION FOR THE PERIOD APRIL 1 2022-MARCH 31, 2023
YOUR $10 FAMILY SUBSCRIPTION PAYMENT GOES TOWARDS OPERATING COSTS, SEMINARS AND CONFERENCES AND REPRESENTATIONS TO GOVERNMENT. SEND PAYMENT TO: KIWI BANK 38-9015-0111409-00—DIRECTS BANK TRANSFER, OVER THE COUNTER AT KIWI BANK (IDENTIFY WORD KASPANZ AND ACCOUNT NUMBER 38-9015-0111409-00) .
REMEMBER ITS ONLY $10 AND PUT YOUR SURNAME WHEN YOU PAY, SO WE CAN IDENTIFY THE PAYMENT
DISCLAIMER
The information in this newsletter is of a general nature only, and is not professional advice. Kaspanz accepts no liability for its accuracy. The newsletter is principally the work of the current chairman of Kaspanz, and articles and views are not to be regarded as Kaspanz policy. The intent of the newsletter is to provide information only, to assist the reader in their own various view points, and is not paid content, it is compiled on a voluntary basis, in an attempt to be helpful to readers in retirement income matters. No liability is assumed by Kaspanz for losses suffered by any person or organisation relying directly or indirectly on information published on this site. Views expressed in any article are the views of the authors individually, and or the editor and do not necessarily reflect the view of Kaspanz .