NZ Herald 10 September 2011

ALet’s assume that the NZ Super age is raised from the current 65 to 67.

You’re right about one thing. Some people without jobs would need government support to get from 65 to 67. So the government would just swap one payment for another.

But to say that 65 and 66-year-olds who are still working are taking jobs from younger people shows a misunderstanding of economics.

Sure, 66-year-old Joe and 30-year-old Suzie might apply for the same job, and Joe gets it. But that’s not where it ends. Joe then earns considerably more than NZ Super, and he spends most of that money on goods and services.

And who supplies the goods and services to Joe and thousands of others in his situation? Suzie, and thousands of other younger workers. The number of jobs is not finite.

Want another way to look at it? Consider an uninhabited island on which a group of settlers lands. They get busy and create jobs for themselves, one providing the others with food, another providing housing, another providing schooling and so on.

As new settlers arrive, the number of jobs grows. The more people who work, the more they earn and the more jobs they create.

So if 65 and 66-year-olds work when they otherwise would not have, that should lead to job creation for younger workers at about the same rate as jobs are taken by those in their sixties.

The end result is that more people will be working — which should boost the economy. And it will also help that the government has to pay out less in NZ Super.

Now, if you’ll excuse me, as a tired, old, unenthusiastic worker I’m just going for a little lie-down.

AYou’re right. When you hand over a lump sum to buy an annuity, you are promised a regular payment for the rest of your life. While it might increase by an agreed percentage each year, beyond that it usually doesn’t vary. So if you buy when market interest rates are lower than usual, you won’t get a good deal.

However, there are ways around this. With some annuities, the payments vary depending on market conditions. Alternatively, you could buy one annuity with part of your savings when you first retire, and another ten years later, and another ten years after that — or something like that.

I’m not saying that New Zealand should necessarily revive annuities as they used to be. We just need more options for people when they start to access their KiwiSaver accounts in retirement.

AOkay, boyo. We’ll get back to this on September 8 next year. Meanwhile, apologies accepted.

On Rabobank’s market share in New Zealand, a bank spokeswoman says, “We only finance the food and agribusiness sector.” While RaboDirect offers saving accounts, term deposits and the occasional securities issue to the general market, the bank doesn’t don’t offer mortgages “or general transactional banking to the urban/retail market.”

The fact that Rabobank is small in this country — if growing — suggests most New Zealanders are comfortable with the strength of their own banks.

The pdf you sent is about the Reserve Bank’s open bank resolution (OBR) policy, “a tool for responding to a bank failure”. If you do a search on www.rbnz.govt.nz, you’ll find a Q&A about it.

The policy, it says, allows a bank to be open for full-scale or limited business on the next business day after being placed under statutory management. “This means that customers will be able to gain full or partial access to their accounts and other bank services, whilst an appropriate long-term solution to the bank’s failure is identified.”

Other questions include: “How likely is it that the OBR will be used?” The

A“Banking failures are infrequent, reflecting the low risk nature of the business that New Zealand banks undertake relative to many other financial institutions. This is reflected in the high credit ratings held by the major banks in New Zealand.

“The Reserve Bank does not expect the risk profile of banks to change significantly in the future, and as such would not anticipate an increase in the likelihood of a registered bank failing. However, banking failures can and do happen. One of the key objectives of the OBR scheme is to reduce the costs of allowing a bank to fail, and minimise access to taxpayer funds or bailouts.”

If you’re the panicky type, I suppose you could read this and leap to some scary conclusions. But to me it seems more like a fire drill in a high-rise. It’s good to know how to cope if fire breaks out, even though the chances of it happening are minimal.

While we’re on banking, a couple of readers have written criticizing the credit ratings agencies that have given our banks pretty high ratings.

There’s plenty to criticize about how the agencies operate. But for all their flaws, I still think their ratings count for something. An A rated company or security is almost certainly less risky than a C rated one. Beyond that, my confidence that our banks are not about to go belly up is based on more than just the ratings.

There’s also the issue of America, America. Last week I said the US economy is not going to collapse, and a few of you took exception, so perhaps I should spell out what I meant.

The US is going through hard times. And they might get worse before they get better. My name is Mary, not Pollyanna. Still, things will come right in time. They always have, and the fundamentals haven’t changed all that much.

If you disagree with any of this — even to the point of avoiding the use of banks — that’s your choice. But my money is staying in my bank.

I am, though, concerned about some correspondents. You carry huge worries on your shoulders. But if I were to suggest you get out into the sunshine more often, you would probably call me flippant. In any case, it might be dangerous. You never know what might be behind that daisy bush up ahead.

AGood point. But let’s stay nice to him in the meantime. After all, he has apologised quite profusely, above.

Thanks for the support from you and several other readers. One example:

“I have followed your columns for several years and invariably find them interesting, well written, original and pertinent to the New Zealand situation, without any hint of bias or vested interest.

“There are plenty of economic writers who fall well short of these standards. As a community newspaper editor for 22 years, I think I can recognise bias between the lines. This person is talking through their wallet.”

I don’t usually publish people’s positive comments about the column, so there’s more space for the issues. But I do appreciate them. One more:

AThanks.

ASorry to exclude you. Your letter also mentions some particular features of your fund, but it doesn’t seem fair to include those without doing the same for other providers. Readers can get details from websites.