100-year-old problem for advisers

The swelling number of centenarians in the next few decades will force a rethink from financial advisers and their clients, according to a prominent adviser industry figure.

Tuesday, June 12th 2012, 6:45AM

by Niko Kloeten

New research by the Financial Services Council has predicted that about half of all New Zealanders born last year will live until they're 100 years old (44% for males, 52% for females).

The research has prompted renewed calls for changes to New Zealand's superannuation system, with a warning by the FSC that taxes will have to increase significantly unless changes are made such as raising the age of eligibility.

And according to Institute of Financial Advisers president Nigel Tate, it won't just be the government that will have to change tack as a result of this demographic headwind; advisers will also have to change the way they do things.

"I suspect it will be [a big issue for advisers] going forward; however, the people born last year are currently one year old, so we've got a couple of decades up our sleeves.

"It's definitely a trend which is suggesting we need to be very seriously considering duration when we start to look at longevity... it seems to have been a common thing in the past to make provisions to 85 and that has been progressively extended out to 90."

Increasingly sophisticated tools are becoming available for advisers to work out the likely life expectancy of their clients, he said.

"If you just use the average very few people will get it right because they'll either die young or die late."

Longer lives will also require changes to asset allocations, with exposure to growth assets likely to last long into retirement, Tate said.

"People assume that their investment horizon is from now until they turn 65, and they forget that there may be another 15 to 20 years beyond that.

"If they go to cash and drawing down the money they need for living inflation in itself is going to erode it, so they're going to need to take bigger and bigger chunks out of the house."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

« News Round Up: June 11

Adviser book values boosted by sales drought »

Special Offers