Appetite for annuities

The Commission for Financial Capability and the Financial Markets Authority have today released the second part of their research into how well New Zealanders are preparing for retirement.

It found a quarter of people nearing retirement did not know how they would manage the money they had amassed in their KiwiSaver accounts.

Asked whether they would be interest in an investment product that would provide weekly or fortnightly income in retirement, 8% said they were extremely interested, 21% were very interested and 21% quite interested.

The most likely groups to be interested were those who did not have a financial plan and those who did not have enough savings or investments to provide the sort of lifestyle they wanted.

Almost half of those aged 50 to 64 planned to leave their money in their KiwiSaver accounts. Another 17% plan to withdraw it as a lump sum.

Of those planning a withdrawal, 53% want to spend some and invest the rest elsewhere while just over a third want to invest the whole lot elsewhere. Ten per cent said they planned to spend it.

The most important considerations for an investment were that it would provide a regular income and provide them access to the money when they needed it.

Only about half said the information available from their KiwiSaver provider was useful in making decisions about their retirement.

David Boyle, CFFC Group Manager Investor Education, said: “It is pleasing to see half those members who have access to their funds today view KiwiSaver as an investment option not just for saving for retirement, but to generate some additional growth and income during the years they are in retirement.”

But he said KiwiSaver was not the only solution: a range of different income options will be needed in the future and three quarters of those interviewed who had savings or investments, including KiwiSaver, were interested in a product they could use to invest their lump sum and receive a guaranteed weekly or fortnightly income during their retirement.

Boyle said: “There seems to be a genuine view from this survey that some certainty of income is important to people’s financial wellbeing during their retirement years. One of the most important factors for KiwiSaver members today is for them to determine what income they are going to generate from their KiwiSaver balance tomorrow.”

The survey also showed that those who either had a financial plan, or had worked out what they needed as an income on top of NZ Superannuation, were more likely to choose more diversified investments with a higher allocation to growth assets.

The survey found that more women than men had signed up to KiwiSaver in the over 50s age group. But women were less likely to choose higher-risk options, with more growth assets, for their funds.

Comments from our readers

On 1 September 2015 at 8:41 am Brent Sheather said:

I wouldn’t put too much faith in the purported outcome of any survey from the Commission for Financial Capability. If you are clever enough you can contrive any outcome you like by asking the right questions. If the question had been “would you like a guaranteed income of 2% via an annuity and not be able to get your money out when you want it versus 4% from a bank deposit” the Commission may well have got a very different answer.

Brent Sheather

On 1 September 2015 at 12:39 pm Pragmatic said:

I'm sure that you're correct Brent (as always)... what would consumers know? LoL

On 2 September 2015 at 10:49 am Ralph Stewart said:

Hi Brent, yes collecting research data can be challenging. Nonetheless the focus groups we did up and down the country (12x) with groups or pre and post retirees while not statistically significant does support the findings of the Commission.

Yes traditional annuities are clearly dead, the new variable annuities model we have developed from North American examples offers life time income rates of 5% at age 65 up to 7% at at age 85.

Investment are 100% liquid and constitute a balanced portfolio of Vanguard ETF's.

Liquid meaning the investor can withdraw their capital at any time less the regular income payments they have received and any fees and taxes applying.

The new product is a combination of an allocated pension and the ability to purchase longevity insurance at ages 65 and older.

Given the allocated pension element and the tax status of claims payments from the longevity insurance, the IRD has given us a binding ruling confirming the regular income payments are not taxable in the hands of the investor. They do however pay tax at their PIE rate on the earnings from the ETF's. Regards Ralph

New research shows many New Zealanders nearing retirement age are interested in an annuity-type product that will give them a guaranteed income.

Tuesday, September 1st 2015, 6:01AM 3 Comments

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