Monthly Archives: May 2017

“Removing the anomaly in the spousal provision is doable, cheap and urgent.” We cannot think of one reason why we persist with this iniquitous policy. (Susan St John)

The overseas state pension issue, continues to attract comment from many. There is little doubt that the approach adopted by the Government to the spousal provisions of the Section 70 issues, is unfair. Both on Human Rights grounds, equity issues and fiscal  approach, the issue needs to be addressed.

Kaspanz has written to the Prime Minister on that specific  issue, the letter acknowledged and  the comments made noted, and passed to the Minister of Finance for reply, none  yet received.

Letter printed below

Dear Sir

ETIREMENT INCOME POLICY AND APPROACH

 Kaspanz www.kaspanz.com is a Consumer organisation, with a 4 year history and is an incorporated society. Our focus is retirement income issues, and to add the voice of consumers to the discussion by a variety of commentators on retirement income issues and to support evidence based research on key topics. We operate a website; posting articles on a regular basis and hold meetings and issue member newsletters, attend forums etc.

 SECTION 70

I write principally to ask for your support on addressing the Section 70 issue” relating to partners “involved with this process of overseas pension abatement (Direct deduction Policy (DPP). Here a married retiree may lose all or part of their New Zealand Superannuation because of their spouse’s overseas pension. This lacks fairness and balance. A person’s pension should be theirs in their own right. Research and evaluation by a number of parties’ e.g.NZ Super policy and overseas state pensions M.Claire Dale and Susan St John(2016) commissioned by the Retirement Commissioner , support this contention

We understand the complexities of this issue, including the emotional approaches of a number of parties with views on this topic, but hold to the view that this “specific element” is easily addressed, from a political point of view and would put you and your party in a good light, in addressing an obvious flaw.

NEW ZEALAND SUPERANNUATION AND KIWI SAVER

I refer to your March 6th announcement on NZ Superannuation. Kaspanz is supportive of the twin models of New Zealand Superannuation and Kiwi Saver, both which bask in the approval of most commentator’s as leading the world in pension policy. Comparative analysis shows costs for these schemes are very advantageous to New Zealanders; we appear to have got the model right in this country, costs are reasonable and administratively simple. Our members want consistency on retirement income issues and ample lead in times for any pending changes, so not only can thinking be adjusted, but saving patterns and planning can evolve in a timely manner.

Your announcement of a 20 year lead in period for age of entitlement along with the rationale is understood, also the change in Residency requirements which will appeal to many New Zealanders, but we do suggest that your approach could be reinforced by a Task force review, similar to the 2010 Tax working party, focusing on a range of details and possible adjustments

This would allow submissions, produce a body of evidence and recommendations and would help provide a platform to assist new policy development by Government. In our view it is not too late to reinforce your recent announcements by adopting such an approach

Yours sincerely

Alec Waugh Chairman. Kaspanz. www.kaspanz.com

New Zealand Superannuation payment rates 2017 : MCA NZ Limited summary is a good one

New Zealand Superannuation

 

 March 2017:An overview

New Zealand residents, who meet the eligibility criteria, are entitled to receive a universal old age pension (NZ Super).  The pension is paid fortnightly.

Eligibility criteria

New Zealand residents must satisfy all of the following conditions.  They must

  • have reached State pension age (currently age 65);
  • be a New Zealand citizen or permanent resident;
  • live in New Zealand;
  • have lived in New Zealand for at least 10 years since age 20;
  • have lived in New Zealand for at least 5 years since age 50.

Residence in a country with which New Zealand has reciprocal social security arrangements (eg Australia and the UK) counts as residence in New Zealand.

Level

The benefit is linked directly to the national average wage and is reviewed each year (1 April) against changes in wages.  The target level for a married couple is referred to as “65 at 65” i.e. a net 65% of the net national average wage from age 65.  The current level is 66% of the net national average wage for a married couple, i.e. approximately 33% each.

Taxation

The pension is taxed as income in the normal way under the PAYE system.

Income test

There are no income or asset tests applied to NZ Super.  However, if one partner of a couple qualifies and the other does not, both may receive the benefit, but an income test applies in respect of the benefit paid to the partner that does not qualify in their own right.

Application

The pension when payable is not backdated.  Also, an application can only be made when you are within 2 months of being eligible.  Therefore, an eligible person should apply (make an appointment) in the 2 months before turning 65.

Cost

There are no specific social security contributions or “working life period” based requirements.  The pension is funded out of general taxation.

Private superannuation

The payment of the NZ Super benefit does not affect the private superannuation and savings of an individual.  This includes benefits payable under KiwiSaver.

However, entitlements to an overseas social security pension (like the UK’s Basic State Pension) but not work-related, employer-provided pensions, reduce the New Zealand pension by the equivalent amount.

Potential changes

March 2017, the National Party announced that should it be re-elected and form the government after the 23 September 2017 general election, it would change the rules for NZ Super, such that:

  • The age of eligibility would increase gradually from 65 to 67 between 2037 and 2040;
  • The 10-year residency requirement would increase to 20 years.

There were no proposed changes for making retirement withdrawals from KiwiSaver.  This will remain age 65, subject to the 5-year minimum membership requirement.Under the announcements, if you were born before 1 July 1972, age 65 would still apply for NZ Super.  If you were born on or after 1 January 1974, age 67 will apply.  The transition from 65 to 67 is:

Born in Age of eligibility
Pre 1 July 1972 65.0
1 July 1972 to 31 December 1972 65.5
1 January 1973 to 30 June 1973 66.0
1 July 1973 to 31 December 1973 66.5
1 January 1974 onwards 67.0

New Zealand Superannuation rates – from 1 April 2017

 

  Before tax (gross) Post-tax (net)
  – a year – a week – a year – a week
         
Single, living alone $23,405.20 $450.10 $20,290.40 $390.20
Single, sharing $21,507.20 $413.60 $18,729.36 $360.18
Married person (each) $17,721.60 $340.80 $15,607.80 $300.15
Married couple $35,443.20 $681.60 $31,215.60 $600.30
         

Note

The current (December 2016) national average ordinary-time wage is $58,745 a year before tax ($47,286 a year after tax and ACC) from 1 April 2017.  There are no additional social security or health taxes.  Social security benefits are all met from ordinary tax.  All health, social services and education expenses are financed centrally.  Local authority rates meet the cost of only local services, such as roads, refuse, reserves and planning.he after-tax NZ Superannuation for a couple is equal to 66% of the after-tax national average. Next change April 2018.

Posted by Alec Waugh

Martin Hawes Summer Investment Series: Free

I attended this week the “Forsyth Barr Summer Investment Series”, being currently advertised and presented at a number of NZ venues. Hosted by Martin Hawes, there is no charge for attendance, and as usual Martin presented well and clearly. If I had a critique it was not about any of the content, but the use of a microphone is a must these days, and presentations without such a tool, should not be occurring.

Martin discussed simply and clearly major considerations with regards to investing, and what individuals should be thinking about with their Kiwi Saver Plan.

Snippets from his presentation included the 4% rule and its application, asset allocation and risk factors, longevity, changing inheritance patterns and work force trends. He talked about the Forsyth Barr re-launch of the Summer Kiwi Saver Scheme. Noted the competitive 0.90 fee.

His reference to Warren Buffet investment Guru quotes Rule 1. Don’t lose money, Rule 2 remember Rule 1, and the “If in doubt about the investment and return stay out” raised a murmur of agreement from the audience, reminding everyone why we there!

Martin shared with everyone his current asset allocation pre Trump and Post Trump, emphasising asset allocation was a key issue for all investors

Pre Trump                                               Post Trump

  • NZ shares 10%                                       5%
  • Australian shares5%                              5%
  • International shares25%                       35%
  • Property Commercial 15%                   10%
  • Bonds35%                                               20%
  • Cash 5%                                                   15%

If you get a chance, get along. Martin is an experienced and established Authorised Financial Advisor, author and financial commentator, and Forsyth Barr a long established company.

Posted by Alec Waugh