Category Archives: NZ Super

nzs

Kiwi Saver: New Zealand Superannuation: The New Zealand Superannuation Fund

Can someone please explain the difference between KiwiSaver, The New Zealand Superannuation Fund and New Zealand Superannuation?

KIWI-SAVER was introduced by the Government in 2007 to help New Zealanders save towards their retirement. To help you save, the Government will make an annual contribution towards your Kiwi Saver account (member tax credit) as long as you are a contributing member aged 18 or over. Member tax credit ceases when the member reaches the age of eligibility for NZ Super (currently 65) or has been a member for 5 years, whichever is the later. To get the full member tax credit automatically “you” have to contribute at least $1,042.86 a year

Employees: You can choose to contribute 3%, 4% or 8% of your before-tax pay. If you don’t choose an amount, the default rate of 3% will apply.

Non-employees

If you’re not an employee – for example, you’re self-employed, a contractor, not working or receiving a benefit, then your contribution rate will be set out in the contract you have with your Kiwi Saver provider. There may be a minimum annual sum, or specific payment periods that apply, such as monthly or quarterly.

“Individuals can start a Kiwi Saver account in their own name and take it with them from job to job. “Kiwi Saver is not guaranteed by anyone, including the Government.

“The Government is responsible for setting the rules and regulations for providing a Kiwi Saver scheme. “Providers are supervised by independent trustees and the Financial Markets Authority exercises continuing oversight of the schemes.

Oct 24, 2013 – In the report the Retirement Commissioner acknowledged that while private savings, including Kiwi-Saver, will play an increasingly strong part of people’s retirement income, these should be a supplement rather than a replacement for NZ Superannuation’s modest payments.

NEW ZEALAND SUPERANNUATION (NZ SUPER) is the government pension paid to Kiwis over the age of 65. Any eligible (if you receive an overseas pension, this is important) New Zealander receives NZ Super regardless of how much they earn through paid work, savings and investments, what other assets they own or what taxes they have paid. NZ Superannuation is taxable income

THE NEW ZEALAND SUPERANNUATION FUND (NZSF) was established in 2003 to help pay for the future costs of superannuation entitlements.

Estimated to cover about 10% of future costs and to reduce the tax burden on future New Zealanders for the cost of New Zealand Superannuation

The NZSF invests money on the Government’s behalf and the fund is managed by a crown entity – the Guardians of New Zealand Superannuation

Posted by Alec Waugh 1 February

2017: The Dominant retirement income issues for New Zealand

At the end of each calendar year,  we list what we see as the  dominant New Zealand  retirement income issues.

KASPANZ :  TOP RETIREMENT INCOME ISSUES NZ2017

  1. 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.
  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, and the ability to work an issue. Different implications for different groups apply when longevity is discussed. Longevity for some groups is lower than others!
  3. 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.
  4. Consumers want consistency in changes to retirement income issue policies, and long lead in time to any proposed changes. The first Parliamentary party to accept this will harness good will and ballot box support. A task force similar to the Tax working Group 2010 would assist all political parties to make sound public policy choices re retirement issues.
  5. Kiwi Saver supports New Zealand Superannuation, and is a sound savings model. The default schemes should strongly consider an age related asset bias. Consideration should also be given to Government guaranteeing the scheme.
  6. Fees and costs for Kiwi Saver schemes are more transparent. This trend must continue.
  7. 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 and effecting returns over time, the client aware principal applies.
  8. Buying an annuity or similar product upon retirement or following receipt of post Kiwi Saver lump sums and drawing an income from it, makes sense. A Kiwi Saver provider has recently introduced the first Kiwi Saver annuity product.
  9. 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.
  10. 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!
  11. Failure to Launch. The trend of parent’s supporting adult children with financial assistance continues unabated, yet this is severely affecting retirement years savings
  12. Current trends are parents subsidising 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.
  13. 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.
  14. 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.
  15. 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.
  16. 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. This is one occasion when we should follow the Australian example       Editor comment: Media commentary on retirement income issues, remains traditionally superficial with little historical trend analysis, or comparative research. Fullmark’s to Mary Holm, Susan St John, Rob Stock, Martin Hawes, and Brian Gaynor for their thoughtful approach. Awareness of Scandinavian approaches, and approaches adopted in countries like Canada, Chile and South Africa would be useful additions to the discussion. A task Force on Retirement Income is a must

Who Do you trust!

The editor is taking a rest for a 4 week period. Kaspanz refreshes and updates articles weekly, and shortly after my return, a Xmas newsletter will be mailed. Meanwhile

WHO DO YOU TRUST

The new Coalition Government headed by Labour Prime Minister Jacinda Ardern has announced that the age of entitlement for New Zealand Superannuation will remain at 65 years, and contributions to the NZ Super Fund will recommence.

In May 2017, the then National Party Prime Minister Bill English announced a reset of entitlement age rising over time to 67, contradicting his promise of  only a year earlier that it will be sticking to its promise to not raise the pension age. This turn-around was immediately challenged by Labours then Leader Andrew Little, who stated Labour, was “utterly committed “to NZ Super entitlement at 65. New Zealand First now a prominent part of the new Government has always been committed and consistent, with the entitlement age being 65 years. Labour on the other hand, has not been consistent.

For those who track statements over time, you will recall that  on December 5th 2013 then Deputy Leader David Parker announced Labour” would raise the age of eligibility for New Zealand Superannuation to 67”, make Kiwi-Saver compulsory for employees and increase the Kiwi-Saver contribution rate if voted into power”. On 20 August 2014 Labour again announced they were using the latest information on the state of the Government’s books to push its policy of gradually raising the retirement age to 67, stating “If elected on 20 September 2014, Labour would gradually phase in an increased retirement age of 67”. David Parker a key component to those statements remains a key member of our new Government, appointed Attorney General, Economic Development and Trade Minister.

My information is our new Prime Minister wants the entitlement age to rise, but politically holds to the current policy position of 65 years.

The consumer is both concerned and confused over these frequently changing positions (NZ First exempt). Consumers want consistency &certainty on retirement income policy, with long lead in times for any changes that might occur, so saving habits and understanding can take place.

What is needed is a task force report, similar to the Tax Working Group 2010, on retirement income issues.

To my knowledge there has been no extensive review (Commission or Working Party) on retirement policy issues for nearly 30 years.  It is long overdue, and any political party making new policy announcement’s on the age of entitlement to NZ Superannuation or Kiwi Saver without such material, is vulnerable to the accusation of making policy on the hoof, and political expediency.

Posted by Alec Waugh

Kaspanz Chair Makes Sunday Star Times

Don’t panic on pensions

ROB STOCK

Sunday Star Times Oct 13th, 2013 D1, D5

Fears of a massive unaffordable pensions blowout in future may be easing as analysis suggests a sustainable solution is achievable.

Measures proposed by the Retirement Commission are estimated to cut the cost of NZ Super to about 6.5 per cent of GDP by 2060 – a level seen as costly, but affordable.

Retirement Commissioner Diane Maxwell said the measures were designed to be the last big changes needed to make the universal state pension sustainable in the face of an ageing population.

Her comments follow analysis from the University of Auckland’s Retirement Policy and Research Centre showing a consistent decline in Treasury’s estimates of the future cost of NZ Super.

14 treasury models

Click for full-sized image

On Wednesday in the Focusing on the Future report the Commission for Financial Literacy and Retirement Income proposed progressively raising the age of eligibility for NZ Super (currently $21,336.64 before tax for a person living alone) as life-spans increase. Continue reading

Island Pension Portability

On 9 August Foreign Affairs Minister Murray McCully announced improved pension portability for those looking to retire to the Cook Islands, Niue and Tokelau from New Zealand. People who are entitled to NZ Super will be able to depart New Zealand to live in one of these three countries after the age of 55 and apply, without returning to New Zealand, for their NZ Super once they turn 65. Currently people would have to stay in New Zealand until turning 65 in order to qualify. The new policy will need legislation to be passed and is expected to apply from 1 July 2015. Alec Waugh, Chair

Our Chair’s letter re Sunday Star Times “Sweet dealing Super for Baby Boomers”

Sunday Star Times Published today, 4 August  heading SUPER IS SUPER

Mark Brighouse “Sweet dealing Super for Baby Boomers” read like an apology for  the Generation X inability to plan or take a positive future approach, in preference to “the want it now” wish list. The answer to the Brighouse dilemma stares him in the face. The New Zealand Superannuation Scheme is a world leader with its simplicity and universality, and anyone advocating its demise, or replacement with a different formula, needs to examine their own financial and social knowledge. At a current 3.7% of GDP, we have one of the lowest cost schemes in the world, and over reasonable time spans, this will continue to be cost effective, and easy to implement. Its universality will avoid the costs and charade of asset and income testing regimes, and the impact of the current model satisfies a multitude of societal requirements and well-being standards.   The only reason New Zealand will not retain current entitlements or in a similar form, consistent with the additional Kiwi Saver income stream, will be silly thinking or poor decision making by future governments. Current media commentators are yet to get the message our New Zealand Super model is the “crème de crème”. With a focus on economic productivity, the aged continuing to work longer and pay tax, and new measures and approaches which always appear over time, our unique  taxable New Zealand  Superannuation is model  is sustainable and equitable

Alec Waugh

Our Chair’s Letter to the Listener August 3-9

Retirement Savings

The Kiwi Saver special “On the Money “ July 27 made informative reading. But the issue of a compulsory income stream in the form of an annuity, over a lump sum on retirement requires addressing. The Australian Superannuation Industry acknowledges this is a real flaw in their system, and New Zealand should learn from their mistake.  The gender factor and how to deal with intermittent breaks from employment also needs attention. Equally the fee issue is understated in the article. Percentage fees structures should be avoided, and there is enormous duplication in administration and back office functions. In the retirement income and age discussion it’s important to recognize that the New Zealand Superannuation model with its simplicity and universality is a world leader, with low administration costs. This principal requires reinforcement and highlighting, there is no evidence to support any viable alternative. In contrast to many countries New Zealand does not pay a tax free pension, the current after tax figure is 3.7% of GDP and over the next 20 years, any projected expenditure rise is very manageable, contrary to the alarmist’s propaganda.

 

Alec Waugh-Takapuna, Auckland

LIstener Article