Interest rates: The cash rate is 1.50 per cent at the moment, but 1.25 per cent is likely by August?

This article is courtesy of “Life time Income”  NZ website”  http://www.lifetimeincome.co.nz

Why interest rates refuse to rise…

Nowhere in the Reserve Bank of NZ (RBNZ) official policy objectives is there any mention of making life easier for retirees.

That was made clear once again in May when the RBNZ, in a surprise move, dragged the official cash rate (OCR) down another 0.25 per cent from its long-held historical low of 1.75 per cent.

Term deposit (TD) investors – many of whom are retirees – no doubt experienced a familiar sinking feeling on the latest OCR news.

Deposit interest rates have been in freefall since the 2008 global financial crisis (GFC) as central banks around the world cut furiously to avert a financial system meltdown.

We are a long way from the heady pre-GFC heights where TD returns hit 8 per cent or more in New Zealand.

New Zealand interest rates, in fact, fared better post-GFC than many other developed world countries where respective counterparts of the OCR tumbled close to zero; some central banks effectively took rates into negative territory via modern ‘money printing’ techniques known as ‘quantitative easing’.

But our relative good fortune holds little cheer for retirees pondering how to make a lifetime savings pot go a little further each week.

More than 10 years out from the GFC, most central bank interest rates – and with them bank deposit returns – remain depressingly low. The RBNZ downward move in May was in tune with offshore sentiment where our nearest neighbour, Australia, is expected to cut – perhaps up to 0.5 per cent – this year from its current 1.5 per cent level.

Similarly, the US Federal Reserve, which sets the tone for the rest of the world, reversed direction this year from a rate-hiking mode (it raised four times in 2018) to hold, with many observers expecting cuts ahead.

The current downbeat positioning of the RBNZ and other central banks is linked to a forecast slowing in the global economy over the year ahead.

In summing up the rationale for the May cut (and hinting at more to come), RBNZ governor, Adrian Orr, said “a lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates”.

Until recently, the RBNZ’s only monetary policy target was to keep inflation in a range of 1-3 per cent over the medium term “with a focus on keeping future inflation near the 2 percent mid-point”.

Following a series of reforms last year, the RBNZ now must also formally consider “supporting maximum sustainable employment” when setting the OCR.

While the employment requirement has muddied the OCR waters somewhat, the inflation part of the equation still dominates.

 

Inflation has remained stubbornly low since the GFC – for reasons economists are yet to fully decipher – with few expecting its rapid return.

For example, the May OCR statement notes “it was agreed that inflation expectations remain well anchored at the mid-point of the target range” with some risks that it could go higher… or lower.

As the RBNZ notes: “A period of lower inflation may then have a persistent effect on pricing behaviour, dampening inflationary pressure for a prolonged period.”

In short, don’t expect interest rates to revert to the pre-GFC historical patterns any time soon.

The low-rate trend – while beneficial to borrowers now – leaves risk-averse savers, which includes a large chunk of the retiree population, in a quandary.

Following the May OCR, for instance, term deposit rates fell again: according to online publication Interest, New Zealand’s major banks are offering TD rates of between 2-3.25 per cent stretching out at almost the same level for all periods up to five years.

Of course, tax could wipe up to a third off those meagre TD returns for many retirees.

With TD yields shrinking, a growing number of other investment products – such as forestry, commercial property and mortgage funds – have launched aggressive marketing campaigns offering higher, but still single-digit, returns. But as survivors of the 2006 New Zealand finance company collapse will recall, higher returns carry higher risks.

Others are using the OCR doldrums to promote the virtues of shares.

A recent Stuff article, for instance, notes that “while our bank accounts slow to a halt and run out of steam, the return on investment on the share market is continuing to provide a good return”.

“The OCR decrease is one way the Reserve Bank encourages Kiwis to get investing…,” the article says.

While the argument has its merits for those with a long investment time horizon, retirees have good reason to be cautious about chasing the seemingly-endless bull market run.

Clearly, it’s getting tougher for retirees to manage solely through a DIY investment of TDs. In this low-rate era professionally-managed solutions, such as the Lifetime Income Fund, which carefully balances income and investment risk over time frames appropriate for retirees, look increasingly attractive.

And unless the government adds a new clause requiring the RBNZ to consider the retirees, the OCR won’t be riding to the rescue in a hurry.

Posted by Alec Waugh 21 June

Retirement Commissioner Diane Maxwell parting shot: Hit and miss?

Diane stepping down this month,  as Retirement Commissioner,  from what could only be described as “unsatisfactory performance”  (can anybody forget the 2 name  re-branding exercises,)  has left the building with a few comments, shown below.

The age of eligibility for New Zealand’s superannuation must rise, says outgoing Retirement Commissioner Diane Maxwell. 

“For all of us, for our children and our grandchildren, we need to do it.”

On TVNZ1’s Q+A, Ms Maxwell said changing the age of NZ Super should not be thought of as going up from 65 to 67, instead, “we need to think 50 to 70”. 

“People get into their fifties in very different shape, physically and financially. We need to be investing in people in their fifties, raise the age of eligibility for Super.

“It’s not the retirement age. Forty-four per cent of people keep working past 65, so invest in people in their fifties, give them what they need for another however many years of work.”

Ms Maxwell thought “we will get there in the end” on means testing for NZ Super. 

“Raising the age is a no-brainer. I think we should leave indexation alone, and I think we will get to means test.”

However, barriers to raising the age included politicians “looking down the barrel of vulnerability” and needing the voter to “take some responsibility”. 

“The Government gets caught up in today, voters get caught up in today.”

“It takes a step of courage to say, ‘This might not look pretty, let me explain it, let me explain why it matters’… for all of us, for our children and our grandchildren, we need to do it.”

 

Susan Edmond’s replied to the comments  as shown below

https://www.stuff.co.nz/business/113409891/can-new-zealands-superannuation-age-remain-at-65

 

Posted by Alec Waugh June 14

KIWI SAVER THOUGHTS

If you are 65 or over, from July 1 you can join or rejoin Kiwi Saver,  a lack of information currently on how the Kiwi Saver providers will market this change!

Susan Edmund’s provides some thoughts on Kiwi Saver generally.

KiwiSaver:  Should it be your retirement savings plan?

Susan Edmunds  April 02 2019

New rules introduced this week mean you have more Kiwi Saver options.

As of Monday, you are no longer limited to automatic contribution rates of 3 per cent, 4 per cent or 8 per cent of your pay. You now also have the option of 6 per cent or 10 per cent.

But just because you can save more – should you? And is Kiwi Saver the best way to save for retirement?

FOR

It is a truth universally acknowledged that putting money aside for retirement is a *good thing*.

The earlier you start, the more you will save by 65 – and the more compounding will do the work for you, reducing the proportion that actually has to come out of your pay.

KiwiSaver has some clear advantages over most other schemes.

Your employer has to give you a contribution of at least 3 per cent of your pay if you’re in the scheme and you’ll get the member tax credit of $521 if you put in at least $1042 a year.

Fees are generally lower than other managed funds. Economies of scale, and more competition, should push them lower still.

The contributions are managed out of your pay before you see them and then investment decisions are made by a fund manager whose job it is to get you the best return for your risk profile. You do nothing.

If you’re looking for a way to save, KiwiSaver is a pretty cheap and efficient way to do it.

Should you put aside more money in KiwiSaver each payday? Switching to a higher contribution rate will make a big difference.

Aidan Vince, head of KiwiSaver at ASB, said a 30-year-old earning $50,000 who shifted from 3 per cent to 4 per cent contributions would end up with more than 10 per cent extra saved at 65.

Someone who switched to 6 per cent would end up with $24,000 a year in income from KiwiSaver compared to $17,000 at 3 per cent.

Your money is locked away and is hard to access. Unless you’re buying a first home or in serious financial hardship, you can’t touch it until you are 65, so there’s no temptation to dip in.

AGAINST

But hold on, there’s been nothing to stop you putting extra, voluntary contributions in to your Kiwi Saver account already – and how many people actually do that?

Kiwi Saver money is locked away, so allocating too much of your pay to the scheme could be seen to be a bit risky.

Moving to 10 per cent contributions might be intimidating if you know the money is inaccessible for years to come. You could instead continue saving 3 per cent and put the remaining 7 per cent somewhere else.

Why put away more of your money into the scheme than your employer will match? If you have a mortgage, you might be better off diverting any available cash to paying that off. If you have high-interest consumer debt, that should definitely take priority.

The Government has rolled back lots of the original incentives to being in the scheme, anyway. And while employers say they offer 3 per cent contributions, increasingly that’s being negotiated as a “package” so if you aren’t in Kiwi Saver you end up with 3 per cent more money in our bank account.

It’s hard to get as much individual control over your money in Kiwi Saver as you’d have if you invested in something such as direct shares or a rental property. Craigs Investment Partners offers a “select your investments” option – but this isn’t common.

VERDICT?

Get some personalised advice on the right thing to do with your money to help you end up better off in the long-term.

Any money or time you can spend now on preparing for retirement should leave you better off post-65.

Posted by Alec Waugh 10 June 2019

Kiwi Saver changes 2019

Canstar has provided a timely article, on the recent changes.

Kiwi Saver changes in 2019: What are they?

Posted by Michelle Norton April 1, 2019

Kiwi Saver has come a long way since it launched almost 12 years ago. This year, some pretty significant changes have kicked in including an increase to the options of percentage contributions Kiwi Saver members can make.

Canstar takes a look at what changes have been made to Kiwi Saver, what they could mean for you as an investor and the reasons behind the changes.

 Kiwi Saver contribution options expand to 6% and 10%

As of 12 March, a new law came into effect which means, as of 1 April, Kiwi Saver members can choose to make personal contribution rates at a higher percentage of 6% and 10%.

Kiwi Saver members can now choose to make personal contributions from their base salary at the following percentage rates: 3%, 4%, 6%, 8% or 10%.

This change is a key part of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill coming into effect and follows recommendations from the Retirement Commissioner’s 2016 Review of Retirement Income Policy.

Acting retirement commissioner Peter Cordtz welcomes the change to Kiwi Saver contribution rates and says that it will give New Zealanders more autonomy with their savings.

“Adding more contribution rates gives members more flexibility and control over their saving,” Mr Cordtz says

“We’ve had many New Zealanders tell us that the gap between 4% and 8% is too large for those able to contribute more, so they feel stuck on the lower rates.

“Others want the ability to save even more for their retirement.”

Mr Cordtz references IRD figures that show 24% of KiwiSaver members contribute 4% of their base salary but that only 9% of members personally contribute 8% of their salary, “indicating that more might take up a 6% option if it were offered”.

New Zealanders over the age of 65 will be able to join KiwiSaver

Another key change with Kiwi Saver in 2019 is Kiwi Savers over the age of 65 are now able to join the retirement savings scheme and the “lock-in” period has been removed for Kiwi Saver members over the age of 65.

Currently, those who are 60 years of age or older when they join Kiwi Saver have to stay in the scheme for five years before they could withdraw their money.

Mr Cordtz says the “lock-in” period is “inappropriate” for this age group.

From 1 July, this “lock-in period” will be removed and people over the age of 65 will be able to join Kiwi Saver, as a result of the law change.

KiwiSaver contributions holiday gets a name change

As of 1 April, Kiwi Saver members will only be able to take a break from Kiwi Saver contributions for a maximum of one year, down from the previous term of up to five years.

Mr Cordtz says pausing contributions to Kiwi Saver for several years can have a detrimental and long-term impact on investors.

“Not only do members’ accounts not grow by their contributions, but they also miss out on their employers’ contributions, the Government contribution of up to $521 a year, and returns from that money being invested.

“For many people, five years is likely to be longer than necessary and a one-year renewal provides a prompt to reconsider their position and assess whether they can restart saving.”

In the year ending, 31 June 2018, 136,000 Kiwi Saver members were on a contributions holiday. And, under the previous rules, they would have been able to continue this “holiday” for a term of up to five years.

Canstar has written about what to consider before taking a break from contributing to KiwiSaver. You can read that guide, here.

KiwiSaver contributions holiday has been renamed “savings suspension”.

 What should you consider with KiwiSaver in light of these changes?

Now that there are more options are available, you might be thinking it’s time to up the ante with your KiwiSaver contributions.

For some investors, this will make sense and is a great way to do some more enforced savings before your salary even hits your bank account. For others, an increase in KiwiSaver contributions could mean some more serious lifestyle changes and may not be feasible.

Canstar can’t give personalised advice on whether you should increase (or decrease) your contribution rate. However, we do remind KiwiSaver members to do your research and do your own calculations based on your personal financial situation.

With KiwiSaver back in the spotlight, you might be thinking about joining KiwiSaver for the first time, or even considering a change in KiwiSaver provider or fund.

Again, we can’t tell you what the “right KiwiSaver” fund is – that will differ depending on stage of life, appetite for risk and when you plan to withdraw funds, among other factors. But we can present you with different options, to help you compare and contrast what’s available in the market.

As part of the KiwiSaver section of Canstar.co.nz, we offer free comparison tools, so you can weigh up fees and features, to help you make a shortlist.

 

Posted by Alec Waugh May 27, 2019. Kaspanz acknowledges Canstar.co.nz

for the article

 

SUMMIT RETIREMENT INCOME & THE TERMS OF REFERENCE

The New Zealand Superannuation and Retirement Income Act 2001 requires that the Commission for Financial Capability conduct three- yearly reviews of retirement incomes policies. The terms of reference for the review are set by the government.

To mark the beginning of the 2019 review the RPRC held a summit on 26 April at the University of Auckland.The Summit Proceedings : The 2019 Retirement Income Policy Review and You, are available here.

The purpose  of the Summit was to contribute to better understanding of the sector, the issues, and to the importance of the 2019 Review. Based on the terms of reference of the Review, a  wide range of issues were canvassed, including a contribution on international issues and financial institutions chaired by RPRC Research Associate David Harris of TOR Financial Consulting Ltd. We  look forward to the next few months’ debates on the policy issues that will be ​examined in the 2019 Review.We encourage your participation in the Review. You can register your interest by adding your name to the Commission for Financial Capability database.

Terms of reference for the 2019 retirement income policy review

Aspects of retirement income policies the review must address and the topics to be discussed in the Retirement Commissioner’s 2019 report:

  • An assessment of the effectiveness of current retirement policies for financially vulnerable and low-income groups, and recommendations for any policies that could improve their retirement outcomes.

 

  • An update and commentary on the developments and emerging trends in retirement income policy since the 2016 review, both within New Zealand and internationally.

 

  • An assessment of the impact that the following will have on government retirement income policies, including KiwiSaver and New Zealand superannuation:
  1. The changing nature of work, including the increasing number of people who are self-employed and/or working in temporary and flexible jobs;
  2. Declining rates of home ownership; and
  3. Changes in labour market participation of those 65 and older.
  • Information about, and relevant to, the public’s perception and understanding of KiwiSaver fees, including:
    1. The level and types of fees charged by KiwiSaver providers; and
    2. The impact that fees may have on KiwiSaver balances.
  • Information about the public’s perception and understanding of ethical investments in KiwiSaver, including:
    1. The kinds of investments that New Zealanders may want to see excluded by KiwiSaver providers; and
    2. The range of KiwiSaver funds with an ethical investment mandate.
  • An assessment of the impact of current retirement income policies on current and future generations, with due consideration given to the fiscal sustainability of current New Zealand superannuation settings.

 

  • Information about the public’s perception of the purpose and principles of New Zealand superannuation.

 

  • An assessment of decumulation of retirement savings and other assets, including how the Government can ensure New Zealanders make the most of their money in the decumulation phase.

Posted Alec Waugh May 20

 

Kiwi Saver Fee’s: MOVES IN THE RIGHT DIRECTION

BNZ is to be applauded. Can’t say the same for  some of the others e,g ANZ ,  and the timid comments from some , are typical of those  still trying to camouflage, the  Golden money mile that has existed in New Zealand for years with management fee’s.

BNZ move to trim KiwiSaver fees ‘may have other providers watching closely’

Susan Edmunds 11:51, May 06 2019

BNZ’s move to lower KiwiSaver fees has been described as a step in the right direction.

From May 1, BNZ will remove the $1.95 monthly KiwiSaver member fee and reduce management fees from up to 1.1 per cent a year to a maximum of 0.58 per cent.

“These changes remove important barriers to choosing the best fund for a customer’s needs, with the moderate, balanced, and growth funds now all on the same low fee. By this action, we’re removing fees as a consideration when deciding what fund to go into,”  chief customer officer Paul Carter said.

Under the new structure, a person with $20,000 invested in the BNZ Growth fund would have their fees more than halved, from $243 to $116.

AUT senior lecturer in finance Ayesha Scott said it was a good move.

“Any move to lower fees, enabling easier decision making and increasing accessibility of information is positive. While I cannot comment on whether the level of KiwiSaver fees is appropriate, BNZ’s move toward lower fees and easier-to-read disclosure is positive. ”

BNZ is also shifting from active management to a more passive approach for international investments, which Scott said was also positive.”I imagine other providers and the banks will be watching BNZ closely. “Her colleague, Aaron Gilbert, agreed.

“This is brilliant, exactly what has been needed for a long-time. So far we haven’t seen a lot of evidence on competition between KiwiSaver providers on fees but this suggests that it is starting to occur. ”

He said it was possibly driven by the introduction of low-cost options like Simplicity and the fixed fee model of Juno.

“It will be up to members to force providers to look at reducing fees by switching to lower cost providers. Academic evidence doesn’t show evidence that high-cost providers earn additional returns, nor that active managers out-perform passive managers. There is no reason not to look at the lower cost providers. And if enough people move, then other providers will have to match BNZ.”

The country’s biggest KiwiSaver provider, ANZ, said it had made changes to its fees, too.

“From April 1, ANZ has removed the membership fee for KiwiSaver members aged under 18 years of age, and has reduced the membership fee for all other members from $2 to $1.50 per month,” a spokesman said.

“We regularly review fees as we achieve greater economies of scale. As an active manager, ANZ believes it is important to focus on returns-after-fees, rather than just on fees. Active managers generally utilise a higher level of decision-making and analytics, and therefore the fees charged will typically be higher than those of a passive manager.”

Westpac said it also regularly reviewed its fees.

“Fees matter but they should be considered in the context of the service and return a scheme provides.

“The Westpac KiwiSaver Scheme has received the Platinum rating from independent research house SuperRatings for five consecutive years, and was described as a ‘best value for money’ KiwiSaver scheme. It also placed first-equal in a KiwiSaver customer satisfaction survey released by Consumer in April.

“When it comes to fees and returns, we believe the after-fee return is the most important thing for customers to consider. ”

Posted Alec Waugh

RETIREMENT INCOME PUBLIC SUMMIT: 26 APRIL 2019

HI to all. Having been off shore for  4 weeks, and then  a Kaspanz computer crash, its nice to be back online. I attended the above summit and the following perceptions ( valid or invalid) I noted on the flight home.

  1. NZ Superannuation model is  simple and sound,the cost pressures low in comparison to other OECD countries.
  2. Fiscal impact are always important, productivity improvements within the NZ economy would if achieved, overcome most future costing concerns.
  3. The Last Task Force on Retirement Income was 1991.
  4. The Retirement Commissioner will shortly be announced, it’s a cross-road appointment for this entity, who are also tasked with the 3 yearly review to Government due end of this year.
  5. Data capture on retirement income issues require improvement and comparative analysis Data within the OECD Is vital.
  6. Drawing down of funds from capital lump sums upon retirement needs both Government support and involvement.
  7. Financial Literacy is a great theory, nobody disagree;s but achieving it may be the impossible dream, so don’t waste resource trying?
  8. New Zealand Fee’s have been a golden mile for providers for a long time, NZ pays more in Fees than Aussie and most others. Government has to start talking this “outrage down”, someone has to cap  the excessive grab, and guidelines and monitoring is required.
  9. Women are often disadvantaged in schemes and pension etc.  Do something!
  10. Workforce participation by 65 yr old above  is  increasing rapidly. Probably due to necessity,  but only the educated have a real choice to  work or not. Recruitment agencies and work force HR groups, engage in active discrimination practice.
  11. How do we convince both the young, and the policy makers, the models of NZ Super/Kiwi Saver are sound and can be around for decades.
  12.  We are living longer, but are we healthier? Senior years its the quality of life issue, rather than living 2/3 years longer. Be wary of those who proclaim, the  senior years are so much more healthy.

Posted by Alec Waugh May 2