NZ life market misses international trend
New Zealand’s life insurance market grew by 4.4% over the past year, according to the latest international survey of world insurance markets by global reinsurer Swiss Re.
Thursday, July 20th 2006, 9:05AM
by Rob Hosking
“Outlook and profitability of the sector remain favourable (in Australia and New Zealand) in 2006, underpinned by further room for expansion in superannuation and retirement products, sound economic fundamentals and healthy investment returns.”
One global trend noted by the report which is not apparent in New Zealand is a growing interest in annuities.
In New Zealand the market has been stagnant for some time, with only two providers known to be offering annuities - Asteron and Fidelity Life.
Globally, “life insurers sold considerably more annuity products than in the previous years,” the report says “They benefited from favourable stock markets, which fuelled unit-linked policies sales.”
Other factors cited in the growth in annuities are longer life expectancies and increased warnings from some governments that public pension schemes are unsustainable.
“We don’t have a strong savings regime, so we don’t have a lot of people arriving at a retirement date with a large chunk of cash they are prepared to buy an annuity with,” says Investment Savings and Insurance chief executive Vance Arkinstall.
“The other thing is an annuity is an extraordinarily tax inefficient vehicle. When people reach retirement they generally stop working and their income is lower than it was – they move into a lower tax bracket, but an annuity is taxed at 33%. The life companies themselves are subject to 33% tax, plus the tax on the capital gains.
“One of the items on the ISI’s work plan is to work with the government to find ways to change the tax basis of annuities so they become more tax efficient.”
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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