Author Archives: Alec Waugh

“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

Retirement Policy Forum: Age of uncertainty

Two international guest speakers (The Hon Nick Sherry, Australian former Minister for Superannuation) and David Harris (Managing Director TOR Financial Consultant)) spoke to a small audience of 25 persons, at the Retirement Policy and Research Centre of the University of Auckland Forum: Retirement Policy in an Age of Uncertainty. Supporting cameos from Susan St John, Michael Little wood, and Claire Dale, added to the substance of the event.

The guest speakers deserved an audience of at least 150 plus, both providing quality presentations, each meeting the threshold of expectation when listening to international speakers.

What does it take to get NZ commentators, key politicians,  policy staff from the various  MMP parties’ research units to such presentations, the comparative analysis and information provided adds depth to any ones knowledge.  I did not sight anyone from the Commission for Financial Literacy, David Seymour, and Fran O’Sullivan etc. Has the Maori Party ever attended similar forums?

Nick covered the Australian Superannuation system, historically and current development, emphasizing Australia is more similar to the United Kingdom model, while New Zealand has developed its own models. Soft and hard compulsion approaches were discussed and the role of the private sector in Australian was highlighted. His experience with reforms and reviews of the Greece situation was intriguing.  He emphasized from his perspective he had personally reached the point that more reform is inevitable, and costs are likely to increase well above economic growth.  In summary a gloomy future predicted.

David addressed local thinking, with global pension reform findings and lessons for New Zealand.  He has an intimate knowledge of the United Kingdom, Danish systems, and Irish reforms. He emphasized New Zealand’s current New Zealand Superannuation and Kiwi Saver models  were satisfactory for the current generational profile, fit for current purposes, but less certainty re needs of future generations. Longevity risks, Housing, growth in long term care costs were to the fore, and the need for annuity products to emerge. His Danish Dashboard information screenshot was very interesting.  David is an international guru on pension policy particularly with the comparative analysis, a dimension so often missing from the New Zealand scene.

Both speakers said New Zealand compared to most was in a relatively strong position on retirement income costs and sound  operational systems in place, and that’s a good place to begin reviews and adopt best practice options for the future. Both speakers would be useful resource for advising Government thinking, let’s hope the Labour and National parties do engage with such people!

A common theme from all the speakers was NZ appears to be sleep walking on the issue, but with no accord among political parties, and often superficial comment from individual commentators, a high risk of unsound policy decisions sometime in the future, was likely.

What’s required to address the issues?

Putting in place a Task Force or Commission on retirement income issues e.g.  A Tax System for New Zealand’s Future: Report of the Victoria University of Wellington. Tax Working Group. January 2010, or for those with memory over time the 1967 Commission on Tax known as the Ross report, would assist. The Commission for Financial Literacy should be commissioning on a regular basis, research on key issues, and bi-annually hosting a symposium or National Conference on retirement income topics. New Zealand business should be considering its role on the various issues , perhaps funding a number of PHD candidates, and New Zealand’s academic institutions should be resourcing scholarship and providing a focus on retirement income policy and issues. The University of Auckland is to be applauded for actually having a Retirement Policy and Research Centre, now is the time to enhance the unit and enhance its fine record.

 

Posted by Alec Waugh