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Time is of the essence

Friday, August 20th 2010, 12:08PM

by Philip Macalister

One of the stories that has interested me in the past couple of weeks is around the types of investment products we should have for retirees. The need for these sorts of products is, if you believe we need them, only a couple of years ago. Jack Regan at AMP pointed out yesterday that in two and a half years’ time people will be at the point where they can start taking money out of KiwiSaver. Some of the figures being bandied around show that the sums involved run into the hundreds of millions of dollars. This is no surprise when you look at the age distribution of KiwiSaver members. Figures show that the two main areas of concentration are children and young workers, along with the pre-retiree cohort. Years ago I was a fan of annuities, but it seems getting that market going is pretty much impossible at the moment. One drawback is tax. The other is building up some sort of critical mass. Maybe there isn’t a need for special products for this part of the market, rather retirees should just have a good fixed interest portfolio. A couple of recent comments and stories illustrate that putting such a portfolio together isn’t that easy. Rob Stock in the Sunday Star Times highlighted some of the problems in this area. Likewise, a discussion with some, what I would call, intelligent investors in Auckland recently reinforced the theme putting fixed interest portfolios together properly can be hard. Their two concerns were perpetual securities where investors don’t really have much of an out, and reset securities. The basic argument here being when rates rise the issuer will buy them back as they become an expensive funding line and therefore investors miss out. Overarching all this is that debt offerings often don’t provide enough return for the risk. That, though, has been a common problem. New Plymouth-based adviser Peter Hensley has written a “white paper” on the issue of suitable products and it’s worth reading. If you haven’t seen it you can read a copy here. A couple of points he makes is that other countries have dealt with this issue are there are a range of products available. New Zealand is one market which hasn’t addressed this issue. What is worrisome is that, although many people agree there is an issue, little appears to be happening. I suggest time is running out and we need to look at solutions for clients, especially those who become eligible to take money from KiwiSaver. Hopefully the stories we have run, and the comments so far, will help create some debate around this area. (In that sense it has been pleasing to read these comments.)
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AIA 4.55 3.55 3.89 3.99
AIA Special - 3.05 3.39 3.69
ANZ 4.44 ▼3.29 ▼3.45 ▼3.85
ANZ Special - ▼2.79 ▼2.95 ▼3.35
ASB Bank 4.45 ▼3.35 ▼3.19 ▼3.85
ASB Bank Special - ▼2.85 ▼2.69 ▼3.35
Bluestone 4.44 4.44 4.29 4.34
BNZ - Classic - ▼2.79 2.99 ▼2.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.75 3.99 4.39
Lender Flt 1yr 2yr 3yr
BNZ - TotalMoney 4.55 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 2.80 3.15 3.19
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union North 6.45 - - -
Credit Union South 5.65 4.75 4.75 -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Lender Flt 1yr 2yr 3yr
Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 ▼2.80 ▼2.89 3.50
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC ▼4.40 ▼2.95 ▼2.95 ▲3.69
Kainga Ora 4.43 3.55 3.85 4.14
Kiwibank 4.40 3.74 4.14 4.40
Kiwibank - Capped - - - -
Kiwibank - Offset 4.40 - - -
Kiwibank Special - ▼2.65 ▼2.79 ▼3.25
Liberty 5.69 - - -
Lender Flt 1yr 2yr 3yr
Napier Building Society - - - -
Nelson Building Society 4.95 3.75 3.99 -
Pepper Essential 5.18 - 4.98 4.98
Resimac 3.49 3.45 3.39 3.69
RESIMAC Special - - - -
SBS Bank 4.54 4.85 5.05 5.49
SBS Bank Special - ▼2.99 ▼3.05 3.69
The Co-operative Bank - Owner Occ 4.40 3.09 3.35 3.69
The Co-operative Bank - Standard 4.40 3.59 3.85 4.19
TSB Bank 5.34 ▼3.59 ▼3.79 ▼4.19
TSB Special 4.54 ▼2.79 ▼2.99 ▼3.39
Lender Flt 1yr 2yr 3yr
Wairarapa Building Society 4.99 3.95 3.99 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - ▼2.79 ▼2.79 3.39
Median 4.55 3.50 3.79 3.69

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