Ten or 15 years ago, more than half a dozen companies offered annuities, but currently only Fidelity Life does. Other providers dropped out, probably because our tax system and related issues don’t favour annuities, so there were too few takers.
But with KiwiSaver leading to more New Zealanders retiring with considerable savings, the government seems to be taking new interest in annuities.
Retirement spending "is the next stage of policy thinking and policy work," Finance Minister Michael Cullen told members of the Association of Superannuation Funds of New Zealand at their recent conference. "The annuities market in New Zealand is pretty underdeveloped by international standards. But we’ve got time to think the thing through. Nobody is retiring on KiwiSaver for the next four years."
Said National’s finance spokesman, Bill English, "There should be more of a demand for annuities. That seems to be the next logical step in the kinds of savings policies developed in the last few years."
If you buy an annuity, you give a lump sum to an insurance company in exchange for regular payments for the rest of your life – and perhaps also your spouse’s life.
Some annuities pay steadily increasing amounts, to take inflation into account. And some include a guarantee that if you die within, say, ten years of purchase, payments will continue to your estate until the ten years is up. Nevertheless, those who live for many years get the best deal.
Provided whatever government we have over the next few years makes annuities more attractive, they are likely to prove popular. Having a guarantee that you won’t outlive your savings is an excellent use of part of your nest egg.
Cullen also told the conference his government is not planning to increase the NZ Super age beyond 65. "People need stability". Nor is it looking to make KiwiSaver compulsory. "We’re going to achieve our ambitions with a voluntary scheme."
He acknowledged there have been problems with the payment of KiwiSaver funds to people’s estates, after they die. Officials and industry experts are discussing a solution, he said. "It’s not something we should rush."
English said National plans to announce its KiwiSaver policy as part of its tax package, "after Treasury opens the books," in the next few weeks. He added that "it’s well worth running up an overdraft to join KiwiSaver," but said it is "an expensive scheme for the government".
He also said National wants to create "vehicles to allow New Zealanders to invest in infrastructure, through bonds or equity." Such products would provide much-needed long-term investments for managed funds, English added.
WIN A BOOK ON KIWISAVER
Random House, publishers of my new little black book "KiwiSaver Max: How to get the best out of it", have made 20 copies available to readers of this column.
For information on the book, which includes tips on getting more from KiwiSaver and the results of an extensive survey of 31 providers, see www.maryholm.com
The book answers many readers’ questions about KiwiSaver.
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