Get out of your conservative Kiwi Saver fund and change to Balanced or Growth .
Get out of your conservative Kiwi Saver fund and change to Balanced or Growth .
KIWI SAVER, ANNUITIES AND SUPERANNUATION PROTECTION ASSOCIATION NZ INCORPORATED: SUBMISSION TO DEVELOPING A STRATEGY FOR AN AGING POPULATION
My name is Alec Waugh; I am the chairperson for the consumer organization known as Kaspanz, an incorporated Society with its principal focus retirement income. www.kaspanz.com and evidence based research on material associated with this topic.
Over our 5 year plus existence we have gathered a wealth of information and knowledge, and this submission is based on that evidence related material.
Our submission is principally to highlight a number of key issues, direct attention onto some possibly invalid perceptions and to urge presumptions and assumptions are as validated as much as possible.
“The next generation of older people will live longer, be healthier, more skilled and more educated. They are much more likely to remain in the workforce – and too want to”.
Super Senior Newsletter, June 18
The above statement is highly optimistic; debate circulates re the accuracy of a healthier, skilled/educated, want to work mindset. We urge comparative analysis with other OECD countries.
Germany is an interesting policy study, e.g. John Beard Director Department of Aging and Life Course, World Health organization “the growth of the old age dependency ratio in Germany has far outstripped that in America, but GDP per person has nevertheless grown even faster” and a literature search/research of current thinking on key issues.
NZ SUPERANNUATION AND KIWI SAVER
The twin retirement income models are world -leaders, and New Zealand should be acknowledging this fact.12345
Most OECD countries admire our schemes, their simplicity and their universality, with New Zealand Superannuation being different to most others, being taxed at source, but with overall costs significantly lower than most OECD countries. New Zealand is seen as the smart country in relationship to its Retirement income models, this requires endorsement and reinforcement. No major change is required; when adjustments are required they should be incorporated within the existing model, with no significant change required or needed. Kaspanz suggests be very wary of single issue commentators and those attempting to forecast the future, there assumptions are frequently invalid.
SENIORS IN THE NEW ZEALAND WORK FORCE: ENGAGEMENT/EMPLOYMENT
The trend is for seniors to work longer in the work place. This leads to senior year’s people contributing to the economy and societal well-being, including paying taxes, all positive engagement. However contrary to the headlines, research does suggest this work force engagement is because of necessity, due to marriage failures, poor investment decisions, caught up in the semi-regular pattern of world economic problems, and the simple reality of requiring paid work to maintain reasonable living standards.
Research indicates most of the population do not have the choice of work, let alone the opportunity, they have to find work to sustain a living income, with hurdles every step of the way. Choice is only available for the privileged (educated)
Those that are educated have significantly more choice in the matter, but most people are working because they have too and not because they want to. Rampant bias against seniors in the workforce exists, compounding the problem for those seeking work.
To label seniors workforce participation with the heading (2/3 of those over 65 years want to keep working because of the value and satisfaction) is inaccurate, inadequate and probably misleading.
“The cost of caring for the sick and elderly will continue to grow, as long as the focus is on adding years to life, instead of adding life and dignity to years’”
Overseas research suggests the issue of living longer (possibly 1.1 -2.75 years longer every 10 years, dependent upon which research source is used) has camouflaged the real issue that senior years quality of life is significantly impacted and impaired by illness and disease. The issue of improving health is questionable with a lot of research suggesting significant and often chronic ill health, diabetes, stroke, bowel, cancer etc., is not decreasing but increasing. Invalid perceptions in this area abound. E.g. The Office for National statistics United Kingdom noted life expectancy is decreasing in the UK, with older people dying at a rate higher than previous trends, and rising life expectancy stalling An Oxford professor (Danny Dorling} who analyzed the data , said the figures were alarming, suggesting frail people were increasing, Alzheimer’s and austerity measures possibly contributing? Dorling also said people were somewhat blasé about the situation, “5 years ago such data would have got a lot more attention”.
The NZ Listener Feb 2018 reported “We may be living longer, but those extra years are increasingly likely to be marred by ill health. A study published in Age and Ageing, the journal of the British Geriatrics Society, reports that the number of older people diagnosed with 4 or more diseases will double between 2015 and 2035. A third will be diagnosed with dementia, depression or a cognitive impairment and many also will have severe arthritis
Associated with this issue, is the research stating, that the dominant cost to the NZ Health system, is the amount of money spent at every life stage, in the last 6 months of life, and the focus on dealing with Chronic conditions at all costs, rather than quality of life issues. Whether this is the 3 month old child, or the 90 year old, this is the dominant cost, raising questions about use of resource, options available.
Professor McDonald Massey University, recent critique of the NZ Health system would be an excellent starting pint: http://www.massey.ac.nz/massey/about-massey/news/article.cfm?mnarticle_uuid=768A5722-CC4F-8753-D88C-88414FDBBF61
The issue of Private health insurance coverage and Public health services interface needs considerable discussion, noting New Zealand has a low level of private insurance cover compared to other countries, and this balance requires investigation and public discussion.
Health costs are exploding, with obesity and alcohol/smoking issues contributing to rising health costs, and in Australia individual one off treatment cost applications for a specific ailment, at huge cost appearing regularly. Technology improvements e.g. latest knee prosthesis, micro-invasive surgical techniques or drug-eliciting stent are enormously expensive. Excessive fees charged by some doctors are always an issue and profit gouging by pharmaceutical companies is ever present. How these issues are monitored and addressed is a key. What is good value for money? Who is tasked with regulating standards and ensuring both the cowboys and those that impinge civil and criminal codes are brought to heel?
The public /private balance to Health is the corner stone of the systems both in Australia and NZ, with good public health policy requiring both funding and monitoring of what services will be provided. As always many will end up in public hospitals, but others will go to private hospital and use their insurance. The public/private balance is the strength of both New Zealand and Australian health systems. Nearly 70% of elective surgery in Australia is private. The public system would collapse overnight without the support the private system affords universal health care. In NZ the percentage of those with private insurance is less than Australia (30% NZ, 60% Australia), but the issues are remarkably similar. It’s time to start educating New Zealanders on the importance of this topic, most know Health care is important but few have an appreciation or knowledge about the public/private partnership.
New Zealand does not yet have a deep and established market of annuities and similar product insurance/annuities to help people manage their retirement income, or convert their retirement savings (Kiwi Saver) into a steady stream of income fortnightly or monthly. The arrival of the product” Life time retirement Income product” on the local scene has been a tremendous development in this area; more competition will assist visibility and retirement. A progressive Government should give careful thought to what role it could play in this area
TASK FORCE APPROACH TO RETIREMENT INCOME: AGING POPULATION ISSUES
It is many years since a working group like the current Tax review chaired by Michael Cullen, has looked at aging population strategy. The 1991-92 Task Force on Private Provision for Retirement (1991) was probably the closest and that’s over 25 years ago. A Task force Commission or similar would provide a benchmark of evidence based knowledge, useful for future Public Policy decisions.
 David Harris (Managing Director TOR Financial Consultant” NZ is the smart country for its approach too pension policy “.
 The NZ scheme is one of the cheapest schemes in the OECD group of countries, “The projected NZS expenditure appears modest, especially if net rather than gross spending is counted, and when compared to current pension spending in other countries. Susan St John and Clare Dale 2016
 NZ has one of the lowest rates of poverty in the world for those aged over 65, thanks to NZ Superannuation, Jo Doolan
 Martin Hawes. Author and Financial commentator says “it must be protected and treasured”
 Martin Littlewood the Guru of NZ retirement income research repeatedly states “Tinker with it at your peril”.
NZIER final report to Chartered Accountants Australia and New Zealand March 2018
Couple of papers coming up over the next few weeks, which require detailed reading. All adds to the knowledge base , hope the Research staffers in each of our MPP parties and of course our Retirement Commissioner and her team, wade through this material and similar!
This 2017 article is a timely reminder re both the substance and complexity of New Zealand Superannuation. Contains some excellent references, and always be aware of the single issue commentator and those who adopt crisis rhetoric on the topic. Its a worry when you hear Larry Williams, Mike Hosking, Heather du Plessis Allan and Cameron Bagrie talking on this and similar issues. Limited knowledge and loud voices!
Here is hoping the Retirement Commissioner is developing an extensive body of knowledge on the topic she and her team must be research experts on NZ Super and comparative analysis details, aware of what’s sound and what’s unsound in OECD countries , Chile, Scandinavian and similar.
Posted b y Alec Waugh 6 July 2018
From the Grownups website. Posted by Alec Waugh
The Aussies are up in arms re fees. In general NZ management fees are higher than our Tasman counterparts. Go figure. This article shows industry spokespersons are fudging their comments . Get them all below 1% and we might be on the right track
Did you know that New Zealand savers biggest investment is in Bonus Bonds. Apart from the fact the provider ANZ creams 1.28% management fee, it should be about .50 or less. Bonus Bonds as a sound investment decision raises many issues.
Bonus Bonds – are they an investment worth having?
Updated: March 2018
TLDR Review Summary of Bond Bonds
Bonus Bonds – An Introduction
|It’s a Lottery first, and an investment second
Bonus Bonds are an investment, and the interest or return you receive comes down to luck, as it does with any lottery. You can invest or withdraw without penalty, and each bonus bond is worth $1. A bonus bond will not increase or decrease in value, so if you invest $1,000 you buy 1,000 bonds, and will receive $1,000 when you withdraw your investment. Each $1 bond has the same chance of winning a prize. As it is a lottery, the more bonds you hold, the higher chance you have of winning. It’s important to know that a bond has the same chance of winning in another draw if it has already won, so a winning bond is still relevant for future prize draws.
What you need to know:
|It’s heavily regulated, and offers a risk-free investment.
Bonus Bonds is run by ANZ via their “ANZ Investment Services (New Zealand) Limited” company, and it’s heavily regulated by the government. The government determines the return on investment by setting the maximum odds of winning. Bonus Bonds are mandated to invest your money into cash deposits, and currently invests all its funds in deposits with New Zealand registered banks (50%), bonds issued by New Zealand registered banks (45%) and New Zealand Government debt (5%). Together, this represents a risk-free investment – your money sits with banks and the government.
|The odds of winning a prize are not good
The exact number of prizes award each month does vary; here is November 2017’s distribution which is typical of an ordinary month.
The table makes one thing clear – the odds are not great. With a $1000 investment, you’re looking at a 1 in 3.4 million chance every month of winning a prize above $5,000. 99.996% of bonus bonds return $0 to their owners.
|Every prize is paid out tax-free
Bonus Bonds pays all tax on the prizes (the interest), which means whatever you win won’t be treated as income. For bond holders who pay tax, that gives some advantage to the investment. However, despite the overall return on investment being 1.5%, those with average luck won’t win cash prizes anywhere near that rate.
|Bonus Bonds states the annual return is around 1.5%, but for an individual investor its much lower.
The median prize is $0, which accounts for 99.96% of all bonds. The median cash win is $20, which accounts for 98% of all cash prizes awarded. So, almost every bond wins nothing or at best, next to nothing, with their investment . For every lucky bond that wins $1m, there are 3.4 billion bonds that win nothing.
ESTIMATED CASH PRIZES WON OVER ONE YEAR WITH AVERAGE LUCK
|You can increase your odds…by buying more
|Bonus Bonds markets its cash prizes as “winning” – it’s in fact only a return on your investment.
The marketing talks about the wonderful things “Bonus Bonds $1 MILLION winners” do, and the impulse is to invest to “win” big. Yet the cash prizes are merely the interest paid on everyone’s investment. We all know a friend which says “I win with my Bonus Bonds quite often”.
But if they’ve got $10,000 invested and “win” $75 in a year, the same investment in a bank would “win” $300, and that “win” is guaranteed. Despite this, everyone loves to win things, so there is a strong psychological pull towards keeping money in Bonus Bonds even if the return is relatively poor.
|Bonus Bonds are unlikely to beat the inflation rate
Consumer prices in New Zealand increased 1.9% year-on-year in the third quarter of 2017, meaning general goods and services cost 1.9% more today than they did this time last year. Bonus Bonds, unlike a term investment, don’t pay a guaranteed amount of interest. This means that as inflation increases, your money loses value in real terms. What you could buy for $1,000 last year would cost a lot more next year. Most saving and term investments beat inflation levels, but Bonus Bonds do not.
|If you hold Bonus Bonds for the long term, inflation will eat your investment!
If Inflation averages 2.5% over 10 years (since 2000 inflation has averaged around 2.7 percent in New Zealand), in the most simplest terms your investment will be worth 25% less if you don’t receive any interest on the principal.
For example, if you invest $1,000 in Bonus Bonds for 10 years and don’t win anything, you’ve lost in real terms $250. This can add up the more you invest, eating away at the value of your savings.
|How Bonus Bonds compare with other savings and investments
Bonus Bonds compete with other low risk investments such as term deposits and cash saving offers. It’s easy to compare the overall rate of return of Bonus Bonds to other savings. Firstly, the Bonus Bonds cash prize fund rate is currently 1.4% (although this can change at any time, for better or worse to bond holders). Compare this to:
Our table below presents the estimated “return” on Bonus Bonds for differing investment amounts – we know that Bonus Bonds prizes are awarded in set amounts ($20, $50 etc) so we’ve used some assumptions in our calculation to see how it compares in real terms with the best savings and deposit rates available.
HOW BONUS BONDS COMPARE TO CASH SAVINGS (UPDATED FEBRUARY 2018)
Concluding Comments – Are Bonus Bonds Worth Your Money?
Posted by Alec Waugh, this article is from Money Hub.