Monthly Archives: December 2016


Kiwisaver, Annuities, and Superannuation Association of New Zealand

The Consumer Voice Protecting Your Retirement Savings

Who are we? We are an independent consumer society committed to discussing and analysing retirement and savings issues and to let Government know what we think is fair and wise and what we think is unfair and unwise
Did you know?
• There have been 14 changes to Kiwisaver since it started in just 2007 (with substantial reductions in entitlements)
• Even NZ Super is not Government tamper-proof
• A number of economic experts say NZ Super is ‘unsustainable’. Is that true?
• There are no Government guarantees or ‘safe havens’ for your retirement savings?
Kaspanz discusses and analyses these issues, posting information and research on our website.
It comes down to this: there are two big goals for retirement—how to fund it and how to protect your savings and entitlements. Where will you be in five, ten, twenty, more years?
New Zealand Super is seen as probably the best in the world (the OECD thinks so); administratively cheap, efficient and effective—and we want to keep it that way or make it better.
But retirement doesn’t start and end with NZ Super. It starts with savings.
NZ Super provides a very basic standard of living. 40 per cent of current retirees have no money other than NZ Super. And around 40 per cent think they have enough to live comfortably. Are you one of the happy 40 per cent?
The first goal is maximising savings; Kiwisaver, which the Government subsidises (to a diminishing degree), is the obvious starting point. There are other choices; e.g. employer subsidised schemes and there are other savings options with varying degrees of risk.
The second goal is protecting your retirement income. The first priority is to discourage the Government from diluting pensions in the future because experts tell them they are ‘unsustainable’. Other options include annuities to make your other savings last: one of the biggest fears is running out of money as life expectancy increases and the money doesn’t. There are options like down-sizing homes, or relocating (including into retirement villages) and reverse mortgages. Not all options are equal.
Who else looks after the retirement interests of New Zealanders?
Answer: No-one really. There is the Retirement Commissioner whose main focus now seems to be on increasing people’s financial understanding. And there is the Retirement Policy and Research Centre at University of Auckland. They do a great job of airing issues and analysing things. But their role does not extend to pressing the Government to look after savers and retirees.
That role falls to Kaspanz. We discuss, we analyse and we tell Government and media commentators what we think.
Come join us! Please register on our member page. We welcome new members and membership is a modest $10.00 a calendar year 1 April- 31 March. Your subscription payment goes towards operating costs, seminars and conferences and representations to Government. Sign up online and send payment to: Kiwibank 38-9015-0111409-00—direct bank transfer, over the counter at Kiwibank, by cheque—whatever is convenient for you.
Please go to our> registration page.

Kaspanz Principles

Kaspanz was formed in February 2013, as a voice for consumers in the retirement income discussion. Such discussions have previously been dominated either by industry groups, or economists, or on occasion, political parties seeking a tactical advantage. Consumers are defined as those in receipt of, or paying into Kiwi Saver, NZ Superannuation, annuities etc.
Kaspanz adheres to the principles of transparency, fairness and reasonableness, attempting at all times to provide balanced commentary. Financial prudence and safeguarding of consumer rights is espoused.
Two primary concerns behind the formation of Kaspanz, continue to feature. Firstly the regular interference by Government in retirement income policy affects public affects public confidence about future retirement conditions. Government changes/intervention in retirement income policy, takes place too frequently. There is a need for consistency and time to digest change. Serious consideration needs to be given to seeking a cross-party political accord on retirement income policy. This is a trust issue, which political parties need to take account of. Kasapnz is not averse to change, but supports well researched policy adjustments with adequate public consultation: it is wary of ad-hoc amendments.
Where significant change is required Kaspanz suggests long lead in times and/or phased transition arrangements, because not only do people need to adjust saving habits and retirement planning habits, but economic well-being is fundamental to social harmony. A minimum of 10 years is suggested for significant change, with even longer periods of notice or substantial transition elements to be incorporated for changes such as increasing the age of entitlement for New Zealand Super.
Secondly a trend continues of New Zealand media commentators, writing articles about the alleged spiralling costs of New Zealand Superannuation; including negative long-term fiscal projections e.g. out to 2050/2080. Research on the contrary, shows that the New Zealand superannuation model is recognized by many as the best in the world, both simple and low cost in comparison with many OECD countries. Long-term projections are notoriously unreliable; there are unknown factors that occur over time in societies and many variables that can affect economic outcomes.
Kaspanz recognizes the inherent difficulty in projecting a universal voice on key retirement issues, the topic range is vast and the issues often complex and difficult. Accordingly, there will always be differences of approach.
Accepting that there will always be different views, Kaspanz has a role to play through its website in presenting this diversity of viewpoints. The principle however is that Kaspanz wants a voice in the retirement income discussion and, where possible, the topic under examination should take into account research available on the issue, what trends over time periods have applicability, and whether lessons of history have relevance.
• New Zealand Super is internationally recognized as a very sound model, and alternative models/approaches fall far short of being viable alternatives. There is no reason why New Zealand Super should not be available for both current and future generations. Discussion on areas like age of eligibility, residency rules and the spousal component of Section 70 issues (overseas pensions) are important, but in essence the approach should be minor adjustments to the model, rather than any major change in the absence of compelling reasons for such change.
• KiwiSaver is a voluntary, largely work-based, savings initiative. While relatively new, it appears to be a sound model. A higher contribution level may be warranted, and whether or not to make participation in the scheme compulsory merits further discussion, with Government underwriting the scheme.
• ‘There is a high level of complementarity between NZ Super and KiwiSaver (or equivalent retirement savings schemes). NZ Super provides for a very basic underpinning of economic welfare in retirement and some form of private savings is essential for a comfortable retirement.’
• Government insurance or guarantee of depositor funds is required.
• Retirement income policy needs to take into account gender issues, e.g. what is the impact upon women, when policy is being set.
• Pension eligibility and portability issues re access to New Zealand Superannuation require attention. E.g. Section 70 of the Social Securities Act needs review. The spousal issue relating to overseas pension deductions and NZ Super is unfair; it is inconsistent with the treatment of other personal income and needs urgent attention. The Social Security agreements NZ has with a number of countries require transparency and monitoring
• Means testing of income and/ or assets is a complex issue. The universality of New Zealand Superannuation entitlement has many advantages.

Long John signs off for 2016.

Long John is  our guest columnist, and will reappear again in 2017. Keep a look out next week  for a  Kaspanz view of Retirement Commissioner suggestions.

 In for the Long Haul  “Treasury” is a word with a nice ring to it.  For readers of a certain age, it might evoke memories of Scrooge McDuck sitting on a pile of gold coins in his vault.  This is nonsense of course – it’s the Reserve Bank that has all the loot. It would be better to think of the Treasury as the Jeremiah of the New Zealand public service.   According to Wikipedia (an impeccable source) Jeremiah was known as the “weeping prophet” who foretold a dismal future.  He was right on the money, but no-one listened to him either. As is required by statute, the Treasury last month published its 2016 Statement on New Zealand’s Long-Term Fiscal Position.  The Māori title is more poetic: He Tirohanga Mokopuna means “a grandchild’s perspective”.  That’s what we need, thinking about future generations.

 But whatever it’s called, the Treasury’s statement has been sunk with barely a trace. That’s a real shame.  Members of Long John’s extensive fan base will know that in a previous blog he wrote about some future Minister of Finance having to find an extra $6 billion a year in today’s dollars to fund the additional cost of New Zealand Superannuation.  In He Tirohanga Mokopuna, the Treasury has once again suggested a couple of ways of avoiding that pickle.

 The first idea is to raise the age of eligibility for New Zealand Superannuation, and the other is to index NZS to the Consumer Price Index rather than to wages. A lot of people think the first of these is a silver bullet, but according to  a 2013 Treasury paper, it will save around two of the six billion required.  So, four billion to go.  Indexation to the CPI would get us there, but is hardly likely to fly politically.  It would mean large numbers of older people falling further and further behind the rest of the population and (sadly) the old are keener to vote than are the young. Maybe the indexation could be somewhere between CPI and wages? Retirement Commissioners and that 2013 Treasury paper have all pushed the boat out on this idea.  If such a move were signalled far enough in advance, future retirees could plan to make up the resulting shortfall through their personal savings.  That sounds like a very rational idea, but it’s also very unpopular. Targeting of NZS, through means testing or a special tax rate to claw some back from high-income superannuitants, is also floated from time to time but rapidly strikes choppy seas and strong headwinds.

 The current Retirement Commissioner has suggested changing the residency criteria for NZS from ten to 25 years.  Long John suspects this has been run up the flagpole to see what people will say, and the real aim is something like fifteen years.  He has seen no estimates of how much this change would save.  Maybe those estimates are to come, in the Commissioner’s 2016 review which is due to report by the end the year. What else could be done?  Resuming contributions to the New Zealand Superannuation Fund would shave a few hundred million off that future bill, depending on the Fund making sufficient returns and contributions not resulting in an additional debt burden. In truth, the solution is probably going to involve a mix of the above, along with some of the extra cost being borne by future taxpayers.  But how much of it is fair and reasonable to pass on? What we need are a few different scenarios with modelling of the cost implications for each.  The Treasury has done this on some measures, but not all of them in combination. Whoever does this work should take heart from knowing that although Jeremiah the prophet was both ignored and persecuted for his views, things worked out OK for him in the end.

: Editors Comment  Increasing economic productivity would provide the answer, NZ has a very poor productivity record, ample room for improvement.




Each year we produce the top 15 retirement issues/trends for the year

  1. The surging upward trend of New Zealanders over 65 in paid work continues, probably due to the fact most cannot afford to retire. However it’s the educated that benefit mostly from this trend, and the hurdles to find work post 60 years, are considerable. Those most likely to need work later in life are the least likely to find it.
  2. Longevity and aging of the population is a demographic reality. The topic requires careful analysis and cautious assumptions. Longevity is increasing, but note the last few years of life may be impaired health, with a probability of a critical illness ( e.g. cancer, stroke, heart, prostrate, Alzheimer’s ) affecting many. Different implications for different groups apply when longevity is discussed. Longevity for some groups is lower than others!
  3. New Zealand Superannuation is the safety net for all retirement income planning. The model is very sound, efficient, effective, reasonable costs, excellent for women, and keeping the elderly from poverty. The costs of New Zealand Superannuation over time are often exaggerated. The simplicity of the current model of NZ Superannuation, and its universality is acknowledged as a world leader. Minor adjustments only are required, as and when they surface. The evidence clearly shows New Zealand has got it right. Consumers want consistency in retirement income issues, and the first Parliamentary party to accept this, will harness good will and ballot box support.
  4. Kiwi Saver schemes supports New Zealand Superannuation, and is also a sound savings model. Consideration should be given to Government guaranteeing the scheme.
  5. Fees and costs for Kiwi Saver schemes have become more transparent. This trend must continue.
  6. Passive and index funds, generally produce similar returns to active funds. When lower fees for passive funds are factored in, schemes following this approach should be a favoured option. Predicting in advance the performance of active managers is impossible, and with their fee structure normally higher, reducingreturns over time, the client aware principal applies.
  7. Buying an annuity or similar product upon retirement or following receipt of post Kiwi Saver lump sums and drawing an income from it, is neither popular nor fully understood, but this approach makes sense.
  8. Rental accommodation issues need review. Housing needs are changing and the standard length of term and the issue of short term leases is just an example of matters requiring attention. A national Housing symposium or similar would be helpful.
  9. Future projections for calculating pensions and health costs must recognize the inherent adjustment factor that occurs in society, and the error factor in long term assumptions is very high!
  10. Failure to Launch. The trend of parent’s supporting adult children with financial assistance continues unabated, yet this is severely affecting retirement years savings. Current trends are parents subsidizing children in various way, including significant child care for under 5’s, housing loans and early inheritance gifting. Parents homes are becoming, a place of return by siblings 20-45yrs following divorce or early work experience. These costs are carried principally by parents.
  11. Health topic requires both transparency and discussion. Chronic illness across all age groups , and the end of life costs (last 6 months all age groups) dominate costs . Increasing health costs due to technology and supplier fees and products, elective surgery options , and increasing the take up of private insurance require public debate.
  12. Senior year people need help in making better use of the wealth tied up in their homes, to support their living options. Conversations on retirement village issues, reverse mortgages /house equity issues and inheritance approaches, need visibility and increasing discussion.
  13. Pension eligibility and portability issues e.g. Section 70 of the Social Securities Act needs review and the Social Security agreements NZ has with a number of countries require transparency and monitoring. The spousal issue relating to overseas pension deductions and NZ Superannuation is unfair and needs urgent attention.
  14. New Zealand is one of the few countries that neither insures nor guarantees bank deposits, instead adopting the moral hazard principle, “make wise choices”. This is poor policy and needs to be changed.
  15. Media commentary on retirement income issues, remains traditionally superficial with little historical or trend analysis, a few voices dominate the headlines. Awareness of Scandinavian approaches, and approaches adopted in countries like Canada, Chile and South Africa would be useful additions to the discussion. How does one increase the knowledge of Parliamentarians on retirement income issues?


Posted b y Alec Waugh