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Retirement Savings Explained

Posted by Iain on July 7, 2017, 3:47 p.m. in Retirement

Perhaps it is because I turned 53 a few days ago that I have been thinking about retiring (not yet, I am afraid!) and I thought I’d write a piece about how our pension retirement processes work for those of you not here yet.  

I know it is dull but it’s a need-to-know for those thinking of moving to New Zealand. 

Unlike many countries, our retirement policies are, these days, something of a hybrid between publicly funded (taxpayer) and private savings.

Saving for retirement is not compulsory in New Zealand and you can retire at 65. You don’t have to - this is a public service employee thing – I understand that they have to (and if they have been public servants all their lives, they should get out a long time before that). Private sector people often work for many years after the age of 65 but it is their choice to do so.

So long as you are resident for tax purposes (not, by the way, the same as paying any tax – you don’t have to pay tax to be a tax resident – if that sound generous, it is), you have spent ten years in New Zealand since you turned 20 and five of those since you turned 50, are a NZ citizen or resident visa holder, you get it.

It is not means tested, so the billionaire and the pauper both get it. It is universal.

Where both partners are aged 65 or over, they each receive $681.00 per fortnight  (which after tax translates to $600 each).

A single person receives $827 which after tax is $720 every two weeks.

These are adjusted each year in line with average wages across the economy.

To some of you that will sound like a lot of money when you convert to your own currency. When you recognise that we have relatively high cost of living, especially in Auckland, then it is actually very modest indeed. I wouldn’t want to live on it.

I’d go so far as to suggest that if you retire and have a mortgage you’ll be looking to your children for help; something common in many cultures but no so common here historically. Or you’ll be living a very frugal (but not undignified) existence with a strong incentive to leave Auckland. 

A recent report suggested that to continue to live a financially comfortable retirement a couple would need to have saved around $480,000 to supplement their Government pension to continue to enjoy a ‘few luxuries’.

If they live in provincial New Zealand that number falls to around $400,000.

We have an aging population and unless the economy continues to grow at its current levels forever it is going to be increasingly difficult for today’s young people to pay enough tax to finance this pension in the view of many economists, so saving is going to be important for those able to.

We have no compulsory retirement laws in New Zealand. You don’t have to save a single dollar nor contribute one to the Government to enjoy it. That doesn’t seem likely to change any time soon.

As a result we have had a very low historical savings rate. That’s one of the downsides of living in a socialist democracy – when you get ‘free’ health, dental, education and retirement without contributing towards it, it does create a certain tension among those that do and those that don’t (or won’t). As an aside if the alternative is the US health, education and retirement environment I’ll settle for ours any day of the week.

I digress.

We do have something called Kiwisaver. When you begin employment in New Zealand you must join this scheme but you can choose to opt out within a few weeks. Kiwisaver is essentially a Government sponsored scheme for want of a better term. The Government tops you up but you save with your own nominated private sector provider.

Broadly your employer pays 3% of your gross income and you can pay 3%, 5% or 8% of it to the tax man who in turn passes that sum along to your nominated private wealth manager.

The key point is the Government doesn’t own nor control your money – you choose who manages it.

You can choose three levels of funds - conservative, balanced or growth - their titles speaking for themselves in terms of returns and risk.

Along the way, however, so long as you pay in at least $20 per week, the Government matches you dollar for dollar to a max of $20. In addition there is a tax credit of around $520 per year given to those investing that $20 minimum each week. 

Government has said ‘we won’t force you to save but we are going to make it so worth your while you’d be dumb not to do it'.

So over two million of us have.

You can’t touch it till you retire, although there are instances where you can, such as to buy your first home.

Recently, given the aging population, the increasing cost of servicing the pension and the fact the life expectancy of your average Kiwi is now over 80 years, the Government announced an increase in the eligibility age to 67.

That will only affect people born in the early 1970s so the lead in time is very long. I have no clue why they didn’t raise it for everyone sooner given we have had Kiwisaver in place for around ten years. If people didn’t get the message to save then (and while many cannot, an awful lot can) they never will.

That’s socialism for you.

I hope that offers you a bit of an insight into the system and I leave you with this:

I was out to dinner last night with friends. One said to me that she likes the fact she is growing old. I asked her what was so good about it? 

She said it meant she wasn’t dead. 

Until next week...

Iain MacLeod

Southern Man

Growing old gracefully...

Posted by Paul on Oct. 24, 2014, 4:01 p.m. in Retirement

We all grow old. It is an inevitable consequence of living. Can't escape it, can't change it. You may, if you happen to be incredibly wealthy and with no medical aversion to plastic, be able to postpone it, but no matter what tactics you employ to stave off father time, we all get there in the end. 

For some (including myself), the thought of the 'twilight years' brings with it visions of plush leather recliners, comfy slippers and hot cups of tea in the newly built conservatory attached to a free-hold home in the suburbs. This would all be nicely topped off with being able to throw off the shackles of employment (or self-employment) and live a life of freedom away from the daily grind.

For others, the thought of growing old brings a sense of dread. Where will the money come from, will there be support, will I have house, where will I live and of course the overwhelming sense that this burden will have to be carried by the children.

In many countries, caring for the eldery is both culturally and economically the responsibility of the children, which translates, interestingly enough, in to differences in attitudes between how New Zealanders see their responsibility towards parents as compared to people form South Africa, or many parts of Asia.

I'll give you an example of how this works. I regularly catch a ferry home in the evenings and amongst my fellow travellers are Kiwis, Brits and South Africans. There was a group of us yesterday who got on to the topic of migration (it follows me around) and that then led to whether or not each person in the group had considered bringing their parents to New Zealand. The two Brits, who were both ten years plus in New Zealand, were quite adamant:"We love having them here for holidays but anything longer than a few thanks" (said in the nicest possible way).

Myself, I wasn't really able to comment as my mother lives in New Zealand (where else would she be?!).

The South African however, who had only been a Resident for a few years was quizzing me right away on the Parent Category, because they had already made up their minds that mum and dad were NZ bound. Given the prospects for the elderly in South Africa, that is a pretty common and understandeable reaction.

I suspect that most New Zealanders have quite a different outlook on caring for their parents than people in a great many countries around the world do; mainly because we have far less to worry about. New Zealand as a country has always had a tradition of looking after its older generation, administered at the State level. Whether that is economically sensible with an ageing population has yet to be fully seen, but for now it works. 

But how does it actually work?

Well we start off with all the usual benefits that are afforded to Residents and Citizens, including first class healthcare, which, lets face it when you are heading into senior years is probably one of the most important 'perks' you will have. You will inevitably need it more and so knowing you don't have to pay for any of it (ever) is quite a nice bonus.

Then on top of this, the state gives everyone over 65 that meets the criteria (see below), a liveable income in the form of superannuation; this is paid even if you continue to work past 65. Granted it is not going to send you on luxury cruises every month but it will keep you supported for the essentials. It was always intended to 'top up' the elderly who by that stage, one would hope, have accumulated their own assets, paid off a mortgage and have some savings.

There are varying rates of assistance, dependent on your circumstances but in basic terms if you are married or in a defacto relationship and you both qualify under the critieria listed below, then each person would receive a fortnightly, after tax amount of $564.52, which over a year would be equal to a combined income of NZD$29,355.04. That would get you to a few bowls matches.

If you are single, then you receive slightly more, taking you to a yearly after tax income of NZD$19,080.88.

Of course there are some rules to qualify for this, which include the following:

  • You must be 65 years of age or over to apply
  • You must be a New Zealand Citizen or Resident
  • You must normally live in New Zealand
  • You must have lived in New Zealand for at least ten years since you turned 20 with at least five of those years being after your 50th birthday.

You can get more information on all of the above, by clicking here>>

Of course there are also other minor perks such as concessions on local transport and cheap entry to Museums, galleries and certain tourist attractions, but the key staples, such as healthcare and an income are given to you by the Government. Add this to a country with one of the lowest crime rates on earth (and falling), then it is easy to see why New Zealand is an attractive destination for not only the younger generation of migrants but their elders as well.

There are of course immigration categories that cater for this, which although were changed a couple of years back in an attempt to reduce parent numbers have actually made it slightly quicker for those parents who come from English speaking backgrounds. This is particularly useful for South Africans, where parents are the next item on the 'to do' list once the kids have migrated.

From my own perspective, I have a mother approaching 80 years of age (in fact 80 next week), she lives in her own home in Hamilton, she receives her superannuation and fortunately for her, she also receives a pension from Holland (having not lived their for over 55 years - another country that looks after its elderly). She travels every two years, does plenty of shopping for her 11 grandchildren and lives an independent, worry free life. I should probably visit her more than I do, but I have no fears that she doesnt have all she needs to live out her twilight years, with comfy slippers, leather recliner and sunny conservatory. Thanks NZ, I appreciate the help.

If you are thinking about making the move or have made it already but want to know what might be available for your parents, by way of a safe and secure retirement, then perhaps you should get in touch. Speaking of which I will be in South Africa, in mid November for two weeks (the last trip of the year, before we all take a break) and the Southern Man will be in Hong Kong and Singapore later in November for our last SE Asia tour.

If you want to attend, drop by the website and register - comfy slippers optional.

Until next week (after the long weekend here)

Paul Janssen, standing in for the Southern Man.

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