This article was published on 10 September 2011. Some information may be out of date.

Q&As

  • Older workers don’t take jobs away from the young
  • There are ways around timing problems with annuities
  • Last week’s angry correspondent apologises, and asks another question about how safe NZ banks are
  • Two readers respond to last week’s outburst
  • One more “set and forget” KiwiSaver fund

QWe hear daily of experts advising the government to raise the retirement age. If one was able and productive enough to work beyond 65 this surely means a younger unemployed person is unable to get that job and is therefore costing the state in unemployment benefits.

If, on the other hand, one is not as able or productive to maintain a job after 65 they will then surely be unemployed and forced to claim unemployment benefits. (I realise this can also apply in the current age requirement).

In both these cases the government may be saving on NZ Super outgoings but paying more in unemployment payments. Surely it is better to have older, tired and less-enthusiastic people out of the work force and encouraging younger more enthusiastic people in to the work force?

Therefore, how does raising the super age benefit the government outgoings? (Successful self-employed people are not included as they are not likely to be in desperate need of super).

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.

QRegarding the recent Herald correspondence about annuities, the problem is timing.

A recent article in the Telegraph says annuity payments have fallen to their lowest level ever. That’s because they are linked to interest rates on government bonds, which have fallen.

You cannot know, 40 years out, what the market will yield. And if you are unlucky and need to purchase at a given date — which many pension regimes force you to do — then you risk being much poorer than you expected for the rest of your retirement, as there is no going back from an annuity.

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.

QI didn’t think you’d publish my letter last week. Lol. However, I’m honoured.

I look like a brute, and I wish to apologise. Maybe I was a little heavy handed. I just happen to feel very strongly about the financial irresponsibility that has raped our poor and middle class of their wealth.

I also wish to apologise for my inaccuracies. I did miss the Rabobank AAA, although it would interesting to know what market share they have in New Zealand.

Also, I did actually think you were a financial adviser, so again my apologies.

I have attached a PDF I found on the Reserve Bank of NZ’s website a couple of months ago, and gave me great concern. I’d appreciate it if you took the time to read it as well, and then you’d understand why I have little confidence in our banks.

I think they know what’s coming, and being a central bank they are privy to info that our main banks may not ask for or even think they need. I’d love your feedback on this document please.

I stand by my prediction that we will indeed see some sort of financial calamity and run on the banks between now and this time next year. I have put “our” column aside.

See you in a year girlie…

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.

QRead your column every week — loved your response to the Gold with a capital G man who has a date with you in 12 months when all our banks have crashed and he’s sorted with his Gold.

Not quite sure who he’s going to sell it to, as the rest of us won’t have any money — it will logically have all gone with the banks. What a tool, and keep up the good work.

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:

QTouché!!

AThanks.

QIn a recent column you mentioned “set and forget” KiwiSaver funds, in which the risk is reduced as the person gets older. NZ Funds also offers a KiwiSaver scheme which has a “set and forget” capability, called LifeCycle Portfolio Management.

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.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.