One of the big new potential opportunities for advisers in the retirement savings area is the relatively untouched area of corporate superannuation.
As explained in the accompanying article from AXA, superannuation is made up of three tiers. Tier one being the state pension (or NZ Super colloquially known as “65 at 65”). The middle tier is providing savings vehicles in the workplace and the third is private voluntary provision. Until recently all the emphasis has been on tiers one and three. The government has always provided the tier one end – which is the equivalent of a state funded annuity. While this has been an area of great political debate, there is now a reasonable degree of certainty around its existence, if not its funding.
All political parties, except Act, say that there will be no change in entitlements for people who are already retired or nearing retirement. The picture isn’t so clear for those further out from retirement.
National party leader Don Brash says that “some time around the year 2020 the age of entitlement is going to be an issue, regardless of which party is in government.” The other area are where there has been huge efforts to make improvements is the tier three, or private provision. Indeed much of the financial services industry is built around encouraging New Zealanders to make private provision for retirement.
However, it is debatable about how effective much of this effort has been, partly due to people’s apathy to save and issues such as the tax ones which hamper managed funds. Tier two has become particularly exciting as the government, led by Finance Minister Michael Cullen and State Services minister Trevor Mallard, are very keen on encouraging workplace schemes.
Their view, and one which is supported by a wide range of people, is that workplace super is highly effective as savings can be deducted at source from paypackets and workplaces provide good opportunities to provide education.
We think there is value in promoting greater use of work-based savings schemes as a way for New Zealanders to save for retirement. Such schemes may help to overcome those aspects of human behaviour such as procrastination that may otherwise represent hurdles to starting and continuing to save.
“Work-based savings schemes provide deduction at source, economies of scale and an avenue to reach a high proportion of the population,” the Periodic Review Group said in its report released late last year.
“They also provide a means for employees to consider their retirement planning decisions and a venue for education.”
“An improved environment for work-based savings will strengthen the current voluntary regime by providing better access to one of the more effective ways to save for retirement.”
Also people seem to be positively disposed to this type of saving. This has been demonstrated firstly by the launch last year of an employer-funded scheme for primary school teachers and more recently the announcement of a new savings scheme for civil servants.
Four managers have been selected for this scheme including AMP, ASB Bank, AXA and the Global Retirement Trust.
The popularity of these schemes is well-demonstrated by the fact that the take up amongst teachers has been higher than anticipated and the officials are now suggesting that the cost of the civil servants’ scheme may balloon too as take up levels are higher than predicted.
The message for advisers is that people appear to be getting the message that they should save for their retirement, and the easiest way to do this is to have savings deducted straight from paypackets.
While four managers have been successful in picking up this workplace business others are looking at it including the likes of ABN Amro Craigs.
From and advisers perspective it is worth looking at what has happened in the group insurance market. Essentially advisers who specialise in providing group schemes to workplaces are some of the biggest writers in the industry. However they also have to be patient.
While much of this market has been dominated in the past by fund managers with salaried salespeople selling workplace savings schemes, and more lately groups like Mercers managers are looking to provide products which advisers can use to tap into this market.
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