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Why New Zealand needs annuities

Susan St John outlines to a Financial Services Council conference why New Zealand needs a good annuities market to help people spend their KiwiSaver.

Wednesday, December 11th 2013, 12:00AM

by Ralph Stewart

New Zealand’s Government should step in to the annuities market, says the co-director of the Retirement Policy and Research Centre, Susan St John.

She says there was a need for annuities, particularly for middle-income people. Lower income people could not afford them and wealthier people did not need to bother but middle-income people had a serious dilemma in making a lump sum last from retirement until they died. “It’s quite a big issue.”

The New Zealand market was small and relatively risky for providers. “The Government is going to have to get its hands on the market in some way and facilities on some basis the design, development and delivery of annuities.”

Annuities could be linked to aged care requirements.

The Retirement Policy and Research Centre has planned proposals for a “flexi-super” arrangement, in which people could choose to take a lower pension at 60, or a higher one at 70. He said people would lose out in such a situation, although they would likely not be investment advisers’ clients.

Poorer people would choose earlier, lower pensions and also would generally not live as long. People who were on welfare benefits would be especially vulnerable as the government would want to shift them on to super.

“Advisers will be talking to people who have enough control of that part of their lives and are actively saving. My guess is those sort of people are more likely to choose a later starting age under flexi-super and have a longer life expectancy.”

Ralph Stewart is a director of NZ Income.

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