Author Archives: Alec Waugh

Annuities!

I like the idea of Kiwi saver lump sums, having a component on pay out  which must be taken in the form of a regular  payment. There is a common sense ring about 60% in the  form of a pension and 40% a  lump sum do what you like with it! Unlikely  to be achievable in today’s  legal  and social climate, but…….

Budget Buster: Annuities might not spin your Kiwi-Saver into gold

Richard Meadows 06:00, Nov 03 2019

OPINION: The nine most terrifying words in the English language: “I’m from the Government and I’m here to help.”

Experts have called for our Kiwi Saver balances to be transferred into a state-backed annuity scheme at age 65 and then drip-fed back to us year by year.

The implication is that we are too stupid to manage our own spending in retirement, and need to be protected from ourselves – like small children who blow all their pocket money on lollies.

Honestly, this might be true of some people. And the scheme would have an ‘opt out’. But if you’re going to meddle, it pays to actually have a better plan than the schmucks you’re patronising.

Annuities are interesting – but they’re sure as heck not for everyone. If you’re unlucky enough to retire on the brink of a major downturn, and have to eat into your nest-egg right away, it might not recover.

The old-school annuities were terrible. You invested a lump sum, and received a guaranteed income for life. But there was no way to get your money back out, the rates were unattractive, and the provider kept your money if you died early, meaning no inheritance for the kids.

The market was all but dead until a few years ago, when the first ‘variable’ annuity company arrived. Lifetime Retirement Income is available as a standalone product, and through the Simplicity Kiwi Saver scheme.

Say you invest $100,000 in a Lifetime annuity at age 65. You’ll receive a guaranteed income of 5 per cent of that sum, every year until you die. If your balance grows above $100,000, your income grows with it. If it falls below $100,000, or even to zero, you never earn less than the base amount – in this case, $5000 a year. You can withdraw your balance without penalty. And when you die, whatever’s left over goes to your estate.

Variable annuities are a big improvement, but they have their downsides: an annual management fee of 1 per cent of your balance (cheaper through Simplicity), and an insurance premium of 1.35 per cent.

Taken together, it’s a fair bit steeper than investing your money in, say, a passively managed Kiwi Saver fund.

Annuities have improved but remember, the house always wins, says Richard Meadows.

The difference is that annuities are more like insurance. You’re paying a premium to protect against ‘sequencing risk’: on average, long-term investors tend to do pretty well. But if you’re unlucky enough to retire on the brink of a major downturn, and have to eat into your nest-egg right away, it might not recover.

An insurer can spread this risk over many different time periods, which is a luxury individuals don’t have: you only retire once, and it’s blind luck whether your timing is jammy or rotten.

You’re also insuring yourself against ‘longevity risk’: running out of money before you run out of life. Again, an insurer can manage this risk by spreading it across many clients. The calculations it runs for each person will sometimes be wrong, but on average, it’ll turn a profit.

Just like insurance, buying an annuity has a negative expected payoff – the house always wins. But also like insurance, thinking in terms of averages is a mistake.

An annuity might be insurance against running out of cash.

If your house burns to the ground, it’s not very reassuring to know that the ‘average’ house is still standing. The point of insurance is to cover extreme scenarios that are unlikely to occur, but would be devastating if they did.

This is a decision that comes down to your circumstances, and tolerance for risk. You might be happy to take your chances with sequencing risk, and make other plans for dealing with a market downturn – like cutting expenses, or picking up part-time work.

You can also self-insure as much as possible – in this case, by saving a healthy buffer over and above what retirement calculators recommend (again, these are based on the flawed concept of an ‘average’ investor).

And it’s not all-or-nothing. You might use some of your nest-egg to buy an annuity, locking in a modest guaranteed income, and invest the rest in the normal fashion, in the knowledge that it’ll probably enjoy superior returns.

Annuities are no silver bullet, and anyone who thinks they can magically fix the retirement savings gap is dreaming.

As Ralph Stewart, the CEO of Lifetime, put it: “Ultimately lifestyle in retirement is a personal choice and should never be imposed on Kiwi Savers.”

Instead, Stewart says the answer lies in providing different options. Amen to that. I’m glad that the annuity option exists – but it ought to remain optional

 

Posted by Alec Waugh 16 November 2019

New Retirement Commissioner

 

Govt names broadcasting exec as new Retirement Commissioner

Jane Wrightson: Retirement Commissioner

NZ On Air chief, Jane Wrightson, has landed the plum Retirement Commissioner (RC) role in a move that sees a financial services outsider in the role for the first time.

Wrightson was named this morning as permanent replacement for Diane Maxwell, who finished her tumultuous term as RC this June.Peter Cordtz has been acting RC since Maxwell’s exit.

While Maxwell and her RC predecessors have had financial industry experience, Wrightson comes to the role with a long career in various broadcasting positions, dating back to a nine-year career as head of commissioned programmes for Television NZ starting in 1981.She was also chief film censor before taking up the deputy chief role at NZ On Air in 1994. After intervening chief executive jobs with SPADA and the Broadcasting Standards Authority, Wrightson returned to head NZ On Air in 2007.

In a statement, Commerce Minister, Kris Faafoi, said:“Jane’s experience in that key role within New Zealand’s multi-million dollar media sector has helped us grow our national identity and showcase it to the world.“NZ On Air connects New Zealanders and helps reflect what it is to be a New Zealander.“It supports inclusion and embraces our diversity through the local content it funds.

“The abilities Jane has shown in leading that work will neatly fit into the work she’ll be doing with the Commission for Financial Capability on a national strategy to help New Zealanders get ahead financially,” Mr Faafoi said.

Wrightson will take up the job from February next year.

Posted by Alec Waugh 1 November 2019

We are living longer but in poor health!

This writer is sceptical re the New Zealand headlines on longevity, accepting we are living longer, but the key issue is quality of life, not just whether one lasts a further 18 months

This 2017 United Kingdom article reflects that, and remember New Zealand normally  mirrors research like this. Life expectancy is increasing, but the number of years of healthy life in retirement is not keeping up, with dramatic variations seen across the country

Experts warn that the research raises concerns about health inequality but also how care and support will be funded in the future.

Adults are spending an increasing number of their retirement years in poor health, a think-tank on ageing and population has warned.

The report, which focuses on the situation facing those approaching retirement, also highlights the growing inequalities in life expectancy around the country.

“We need to start having very frank discussions about what social care is going to look like, what healthcare is going to look like, what taxation is going to look like, what labour and immigration policies are going look like – and all of this needs to be set against the context of an ageing society,” says Dean Hochlaf, a co-author of the report from the International Longevity Centre.

The report also flags up that the number of years one can expect to be healthy varies dramatically by location: while 65-year-olds in the London borough of Tower Hamlets have just 6.5 years of healthy life expectancy ahead of them, those in the more affluent borough of Richmond can expect 14.5 years.

Moreover, while life expectancy is increasing among both men and women, the rise in number of expected years of healthy life is not keeping up.

“Obviously it is a great social achievement that we have managed to increase life expectancy, but healthy life expectancy is so crucial for ensuring that there is a better quality of life for older adults,” said Hochlaf. “Initiatives, for example, to extend the working life hinge on this idea that we have a healthier older population.”

The report, funded by property management group First Port, also reveals that while the gig economy is often treated as an issue for young people, older individuals are also affected – being proportionally more likely to be self employed. Indeed, more than a quarter of zero-hours work is undertaken by the over-50s.

“If older workers want to participate in the flexible labour market, and if they can benefit from it, it’s a good thing – but we also have to make sure that they are recognised as a major component of this new sort of gig economy, ” said Hochlaf.

While the majority of those aged 55-64 own their own homes without a mortgage, the report shows that in recent years there has been an uptick in private renting, with almost 12% of the age group renting their home in 2015/16 – up from 4.1% in 2003/04.

Sarah Harper, professor of gerontology at the University of Oxford, said that the report highlights that pensioners were far from entering an age of rest. “Actually, people are still in the labour market, they are doing large amounts of caring not only for grandchildren but for other other adults, so it is actually for many people a time of activity still,” she said.

But Harper cautioned it is difficult to measure healthy life expectancy, and flagged the large geographical variations.

Centenarians are fastest growing a

“The evidence seems to be that we are pushing back the onset of disability and therefore if anything we can expect people in their 60s and even early 70s probably to have better health and therefore to be able to keep active for longer,” she said. However, she noted that evidence also suggests an increase in time spent living with disability among the oldest members of the population.

Debora Price, professor of social gerontology at the University of Manchester, expressed concern at the findings. “We can see inequalities increasing, and that for many people this is a very tough period of life,” she said.

“We know that many older people live with very low incomes, poor housing, long-standing disabilities, high risks of social isolation and loneliness, and little power to change things,” she added. “This is very starkly shown in the report by the differences by local authority … these inequalities go across the life-course and are reflecting a really unequal society at all ages.”

Simon Bottery of the health charity the King’s Fund pointed out that changes in the fertility rate mean older people are likely to have fewer children to offer support.

“Overall, you are faced, I think, with this very clear picture of increasing care and support needs and a real difficulty in identifying who is going to provide it and who is going to pay for it.”

This article was written by admin

Kiwi Saver news: The Fee’s are still far to high!!!

Kiwi Saver providers respond on member engagement but little movement on fees

10 October 2019

The Financial Market Authority (FMA) has today published its annual KiwiSaver report for the year to the end of March 2019, showing a welcome increase in default member engagement, but few signs of a reduction in fees.

Total funds in KiwiSaver for the 2019 period were just over $57 billion dollars – up 17% from last year – while the number of KiwiSaver members has risen to more than 2.9 million, up 3%.

FMA Director of Regulation Liam Mason said KiwiSaver continued to expand its role as an important component of New Zealand’s financial sector, with contributions, investment returns and outflows all increasing through the year ended March 2019.

The FMA report noted that six out of nine KiwiSaver default providers had improved their percentage of members who had made an active choice on their investment: “This has been a key focus for us over the past few years so it is great to see more than 52,000 default members made an active decision about their investment over the past year – up significantly from just over 28,000 in the prior year.”

However, the FMA was concerned at the lack of any significant movement in fees paid to KiwiSaver providers. In total, KiwiSaver providers collected almost $480 million in fees, up 14.7% on last year. “We have previously said we were surprised costs per member had not fallen faster, given the growth in funds under management,” said Mr Mason.

The FMA will be asking KiwiSaver providers to demonstrate how they are providing value for money for members.

Research prepared for the FMA by Melville Jessup Weaver, also published today, has suggested fees charged by KiwiSaver providers are high compared to broadly similar funds in the UK.
“We are concerned that the benefits of scale, at least for the larger providers, are not being passed on to investors,” said Mr Mason.

“Over the coming year, we will be asking KiwiSaver providers to demonstrate how they are providing value for money for members. This includes explaining investment styles and how higher fees are justified for services such as active fund management or responsible investment strategies.”

Mr Mason said the report confirmed the increasing importance of KiwiSaver in supporting New Zealanders’ retirement and helping them buy their first homes.

The amount of money withdrawn by people over 65 topped $1 billion for the first time. A further $953 million was withdrawn by members buying their first home.

Other key facts highlighted in the report include:

  • Total assets grew by $8.4 billion to $57 billion, up 17%. Of this, investment returns made up $3.8 billion, increasing by $600 million (19%) on the prior year. This lift in returns was achieved despite turbulence in global financial markets at the end of 2018.
  • The default schemes’ total assets fell to $4.4 billion, from $4.7 billion the prior year, with their share of assets continuing to slide, from 9.6% in the prior year to 7.6%.
  • The average member’s balance was $19,426, an increase of 13.4% on the prior year’s average. The average management fee paid by members was $132, increasing in line with the average balance.
  • Withdrawals for those aged 65 and over were up 43% to just over $1 billion.
  • KiwiSaver providers reported 199,307 scheme transfers during the year, a 5% increase. This number does include people moving from a default fund to another fund in their scheme.

ENDS

Contact:
Andrew Park
Media Relations Manager
021 220 6770
Email: Andrew.Park@fma.govt.nz

Changing approach to inheritance monies, but don’t be a martyr for your kids!

Be very careful. Be wary of perceptions that different generations have had it easier than others. Rose coloured glass’s  on  past memories , and fear re the future has always been the case.

Helping the kids earlier than past decades is a trend, but at what cost? Some research is saying parents are putting their retirement income at risk. Susan Edmunds provides advice!

Should you make your kids wait for their inheritance – or give it while you’re alive?

First home buyers have had to mortgage to the hilt to get into a first home.

Kāpiti Coast woman Sharon says giving her daughter a big chunk of her house was the sensible thing to do.

“I had my own home, mortgage-free and my daughter was living in it while I was living in my mother’s home. When my mum passed away, my sister and I inherited the house and I bought her out. My daughter wanted to buy her own house with her husband so I sold her a third of the house and gifted her two-thirds.”

Sharon did not want to be identified to keep the details of her daughter’s financial life private.

The deal meant her daughter, who does not work due to a health condition, and her partner were able to buy a house. She was her only surviving daughter, and it made sense to help her and her young family rather than making her wait, Sharon said

“They might as well have the use of it now rather than wait till I die. My mother lived till she was 92. I’m 70, it could be a long time.”It also meant she did not have to worry about maintaining and paying for rates and insurance on two homes.

“I look at the way the young kids are having to really struggle today.,.. there’s a hell of a lot of pressure on them.”An increasing number of people are opting to pass on an “inheritance” to their children while they are still alive, particularly in areas where house prices are high.

Martin Hawes, a financial adviser, said he saw people getting a lot of enjoyment out of doling out their children’s “inheritance” early.People needed to make sure that they did not give away so much that it left them short, said Martin Hawes.

 “If I die at 90, my children will be in their 60s and that’s the case with a lot of people who are having children later.”You’d hope by the time they are in their 50s and 60s they’ve at least bought a home and made fairly good progress. It’s not as helpful as it is to a 30-year-old. It hits the bank account at a time when it’s really useful.”

He said people needed to make sure that they did not give away so much that it left them short. “If you overdo the giving you can become a burden.Tom Hartmann, managing editor of Sorted, agreed people should check they had enough to fund the lifestyle they wanted throughout retirement.

“People typically underestimate how much they need and how long they’ll live. We recommend people run their retirement numbers so they go into it with open eyes and know what tradeoffs there are so they can make the decision.”People would often help their children buy a house, pay off a mortgage, pay for their university fees or help them set up a business, said Liz Koh.

Financial adviser Liz Koh said people would often help their children buy a house, pay off a mortgage, pay for their university fees or help them set up a business.”There are two key issues to keep in mind. Firstly, there is a need to consider any relationship property matters. It is important to get legal advice on this.

“Money given to a child may become relationship property if that child has a partner, and in the event that the relationship ends, the partner may have a claim on it. One way around this is to give the money as an interest free loan repayable on demand. The second major issue is one of fairness and equality.”Children, and for that matter grandchildren, can have a sense of entitlement and there can be rivalry between siblings if one is seen to be receiving more help than the others. Often such resentment doesn’t appear until after Mum and Dad have passed away.

“It is important to record any gifts or loans, and be as transparent as possible with family members to reduce any potential conflict when the estate is wound up.”Karen said it made sense to help her daughter when she could.There is no gift duty applied but if you give more than $27,000 in a year you could be declined a residential care subsidy if you were to apply for support to pay for a rest home.

Auckland woman Karen, who also wanted to keep her daughters’ details concealed, said her daughters had contributed a small amount of savings to the deposit for a rental property she and her husband bought. Now, six years later, the value of the property is being split between the two women to help them buy their first homes.There had been significant capital gains over those years, she said, which boosted the equity they were taking into their first property purchases.

Posted Alec Waugh, 17 October

BREAKING NEWS: NEW KASPANZ WEBSITE COMING

kASPANZ  is reviewing its website, with the intention of updating its presentation and style to a more contemporary format. Progress is well underway, so watch out for the next update.

E-mail alert subscribers (those wishing to be alerted to a new post) may have to re-enter their details on the new site,  once we are up and running, and we fully  realise the importance of this mechanism, so we will be in touch.

kASPANZ  prides itself on regular new posts, and keeping up with new comments, while being alert also to past articles which remain relevant

Full details to follow!

 

Posted by Alec Waugh 14 October