NZ Herald 23 July 2011

AHow about it, indeed, KiwiSaver providers? But I’m going to set the standards higher. While there are plenty of KiwiSaver schemes that offer bond funds, which should fulfill your needs, I want a revival of annuities or similar.

For those who don’t know what an annuity is, you give your provider a lump sum. In exchange, they give you regular income, often monthly, for the rest of your life.

It’s like insurance against outliving your savings. If you live for a long time, you get a really good deal. If you die soon, it’s a bad deal — but you’re not around to care about it.

Nobody can yet withdraw KiwiSaver money in retirement. But this time next year people who joined KiwiSaver at 60 or older will be able to start taking out money.

Some of the account balances will be too small to make much difference to anything, but others will be quite substantial. No doubt their owners would like a little time to think about what’s on offer, so let’s hear about it now.

When I wrote “The Complete KiwiSaver”, two years ago, the only provider selling annuities was Fidelity Life. And I think that’s still the case.

Quite a number of other providers said their KiwiSaver members could set up an arrangement under which a regular amount was transferred from their KiwiSaver account into their bank account. But that’s a bit different. Because nobody knows when they will die, most people will transfer too much or too little — ending up with either a shortfall in their eighties or nineties or money still in KiwiSaver after they die.

As you say, annuities used to be fairly common. When my mother bought one, maybe 20 years ago, about ten companies offered them. Since then, though, companies have gradually withdrawn from the market, partly for tax reasons.

The Capital Markets Development Taskforce and the Savings Working Group both urged the government to look into ways to change the tax situation and otherwise encourage annuities.

So far, the government has said it plans to issue inflation-linked bonds, which will mature in 2025, as part of its bond programme for the financial year 2011–12. This, the experts say, will be a useful place for providers to invest annuity money.

Here’s hoping the existence of those bonds — plus the impetus of retired KiwiSavers wanting annuities — prompts more companies to offer them. Having just one supplier is not good in any market.

If any providers would like a free plug for an annuity scheme or similar that they plan to offer in the next year or two, send me a brief description — up to 80 words — including a source of further information, and I’ll run it in this column.

ANZ Super is not affected at all by KiwiSaver. But your presumption about the fortnightly payments is not correct. Once you get access to your money in retirement you can do whatever you like with it.

However, if you would like fortnightly payments, your provider might help you set that up, as mentioned above.

In “The Complete KiwiSaver”, the following providers said they offered that service or similar: AMP, ANZ, Aon, Asteron, Civic Assurance, Fidelity Life, First NZ Capital, Fisher Funds, Gareth Morgan, Medical Assurance, Milford Asset Management, National Bank, NZ Anglican Church, OnePath, SuperLife, Tower, and Westpac.

And the following said they would help members set up suitable investments in their retirement — which presumably would generate a steady income: Craigs Investment Partners, Forsyth Barr, and Staples Rodway,

Many providers also said they offer advice to KiwiSaver members about how to handle their money in retirement.

Things might have changed since that was written in 2009, so I suggest you firstly ask your own provider what it offers. If it’s not what you want, check some of the others and consider switching provider.

You might also want to keep watching this column, to see if my plea for annuities or similar bears fruit — although the amounts in your accounts may be too small to warrant setting up an annuity.

AI think you should take a deep breath, sell your UK house for whatever you can get for it, bring the money over here and buy a lovely house.

Any of your other options might turn out to be better financially. But they might not. For instance, it’s possible that the value of your UK house, in New Zealand dollars, might never again be as high as it is now.

Even if it does rise considerably, who’s to say New Zealand house prices won’t have risen more in the meantime?

To know for sure what your best move is, you would have to be able to forecast: exchange rates, savings interest rates, mortgage rates, rents and house prices — in some cases not just in one country but two. Not even the world’s top experts can be expected to get all of that anywhere near right.

I’ve been in a somewhat similar position to you more than once in my life. I’ve also watched friends go through the, “What if this? But then again, what if that?” debate. If you own property in one country and then move elsewhere, such questions often arise.

The debate can go on for years. Meanwhile, you’ve already spent three years not living as comfortably as you could.

The fact is that you two are in a pretty strong position financially. Whatever you do you may look back on and wish you had done differently, because you would have ended up better off. But you’re not going to end up in the gutter.

So you might as well follow your original plan — albeit a little late. Escape from the chilly rental and get on with enjoying life.

AMaybe. But probably not in the majority of cases.

KiwiSaver fees are nearly always made up of a fixed amount, typically $35 to $60 a year, plus a percentage of the account balance.

When KiwiSaver started, the government gave everyone a $40 a year fee subsidy, which went a long way towards covering the fixed amount. And if a child had only the $1000 kick-start, or not much more, the percentage part of the fee didn’t amount to much at all.

Given that average long-term after-tax returns on KiwiSaver accounts are pretty much always positive, we could be confident that a child’s $1000 would grow — even with no further contributions.

However, in 2009 the fee subsidy was phased out. That has led to the possibility that fees on a $1000 account could exceed returns, so that the balance decreases.

When I asked providers — in research for my book — which of their funds they would recommend to avoid this happening, the answers fell into two distinct groups.

Some recommended putting the money into their lowest risk conservative fund, on which fees are lower because they are cheaper to run. Others said go for a high-risk fund. While the fees will be higher, average returns over the years should also be higher. Either way, most providers thought it was likely the accounts would grow, and I agree.

You might say, “of course they would say that”. But it’s not that simple. I suspect providers welcome children — despite their not very profitable low-balance accounts — largely because they hope to keep them as more profitable adult members. If the kids’ accounts dwindled over the years, there’s a fair chance they would switch to another provider as adults.

Still, if you’re skeptical, you can always wait until a child is 18 and then encourage them to sign on. At that stage, hopefully you or they will contribute to the account, to receive the tax credit. By the time that’s added to the mix, the dwindling balance problem should be gone.