The Government created KiwiSaver to help us save for retirement. Does it need to create 'KiwiSpend' to ensure those savings go the distance in retirement?

The Government created KiwiSaver to help us save for retirement. Does it need to create 'KiwiSpend' to ensure those savings go the distance in retirement?

Interim Retirement Commissioner Peter Cordtz is considering whether to suggest the Government creates a new scheme to help over-65s draw down on their KiwiSaver funds.

He is weighing up the pro and cons of creating a government-backed annuity scheme - ‘KiwiSpend’.

KiwiSpend would see KiwiSaver members over 65 drip-fed an income, adjusted for inflation, to supplement their income from New Zealand Superannuation.

Cordtz wants public feedback on the idea before he in December presents his three-yearly Review of Retirement Income Policies to the Government.

He points to a paper on decumulation, prepared for the Review by Susan St John and Claire Dale of Auckland University’s Retirement Policy and Research Centre.

St John and Dale propose that once a KiwiSaver member turns 65, their funds be transferred from their KiwiSaver provider to a subsidiary of the Super Fund that would run the annuity scheme. 

From this point they’d be paid an income based on the amount of savings transferred.

The amount they’d be able to transfer would be capped at the point their income would exceed $12,000 a year.

KiwiSaver members with smaller balances would have the option of using other savings to top up the amount they transferred to KiwiSpend.

Their income would be hiked if their health took a turn and their expenses increased.

A 10-year guarantee option could be added to the scheme, so that if a member died at age 70 for example, after being in the scheme for five years, payments could continue being made to their estate for another five years.

St John and Dale propose the transition from KiwiSaver to KiwiSpend be the default, but members be given the option of opting out within a set timeframe.

A number of KiwiSaver providers currently allow members to make managed drawdowns.

But according to an Inland Revenue survey, most retirees withdraw all their funds at retirement to pay off debt or travel.

While KiwiSaver funds under management increased by 17% in the past year, withdrawals by over-65s were up 43% to $1.04 billion.

St John and Dale say retirees currently aren’t protected from the risk of outliving their savings, inflation, unsuccessful investments, financial exploitation or spending the money too early.

They believe it makes more sense for the Super Fund to run an annuity scheme than for the government to underwrite schemes offered in the private sector (of which there are less than a handful in New Zealand), because it already has the capital to secure such a scheme against.

The Super Fund has scale, which would keep overheads down. Its long-term investment horizon also lowers the risk.

What’s more, St John and Dale raise the point that such a scheme would be “gender-neutral”, unlike traditional annuity products that pay women a lower income on the basis they have a longer life expectancy.

St John recognises KiwiSpend would best serve the middle class.

Those with little retirement savings to put into the scheme wouldn’t receive very large payments, whereas wealthier retirees might be better resourced to invest their money elsewhere and manage their retirement income themselves.

Nonetheless, Cordtz says the idea is worth discussing.

“Many people we’ve spoken to in our research for the Review say they’re worried that they’ll run out of money in retirement,” he says.

“An annuity scheme like the KiwiSpend product suggested by St John and Dale may provide members with the peace of mind of a guaranteed income stream in addition to Super.

“With a long-term healthcare rider, it could also remove a person’s future health care costs from families and taxpayers in general.”

The Commission for Financial Capability notes annuities are mandatory in six countries in the European Union and voluntary in 15 others.

NZ Super is currently $411 per week for a single and $632 for a couple.

The public has until October 31 to make submissions on the Commission’s retirement income policy review.

Making your money stretch - Review of Retirement Income Policies 2019 from CFFC Media on Vimeo.

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A couple receiving superannuation should have a single rental property to supplement their income. Having money tied up in term deposits would seem unwise and guarantee "decumulation".
Property should at least keep up with inflation and deliver a better return. As part of retirement plan at least a single rental property would seem wise.

Of course investment in shares should also be similar so when you reach retirement getting super, one rental income as well as a return on Kiwi Saver would seem ideal. Withdrawing and spending Kiwi Saver doesn't seem like a good idea at all. Unfortunately for many suddenly getting a 100k or more may seem like winning Lotto and the urge to splurge on travel or something may be hard to resist. The fund should be considered as a means to keep getting at least some income to supplement super for as long as possible.

At the end of the day the family home, the rental property and what is left in Kiwi Saver can be handed down to the next generation of the family. Resist decumulation if you can.


I'm sorry, but there's so much to disagree with in that post, I won't bother (eg: ask some investment property owners in Christchurch how their holding is going, that they bought pre-earthquake. Property holdings are no guarantee of anything, except ongoing Fixed Costs - income from it is Variable.). A bit like the Interim Superannuation Commissioner, when asked a question this morning on TV "What if people die soon after retirement? What happens then" to which his answer was " Look. I'm no expert in Annuity Schemes...." and yet he puts exactly that idea forward as good?!

Agree wholeheartedly, I bought several properties pre 2008, and was hamstrung for years waiting for the market to rebound. Unfortunately my circumstances changed, had to sell and lost heaps.
While some here are advocating intergenerational wealth transfer, I myself don't intend to give my children a pot of gold. I've worked my whole life to get ahead, and see no disadvantages for anyone doing the same, especially my children.
Back to Kiwi Spend, there are private schemes available ie if that is what you wish, but letting the government control your assets is just asking for trouble.

I didn't write that property holdings are guaranteed to hold their value or increase in value but let's face it they almost always do. Just because there are some relatively rare examples where they don't doesn't dismiss my argument.

I have always been under the impression that it was a good thing to have investments that generate an income so this all comes as a surprise to me that so many here don't think so. Why decumulate if you don't need to?

I think we are seeing more cultural differences in attitudes toward children and their well being in our multi-cultural society. The old Kiwi attitude of thinking your children should totally fend for themselves come what may was likely good once but may be inappropriate now. Our children are now competing with others who have families focused on looking after the next generations. Actually something the more wealthy in our own culture have always done. I see my children as an extension of myself and their well being as my responsibility and want to pass on as much as possible to them and their children while I enjoy a relatively happy and frugal life. A while ago I realized that being generally generous and liberal with them would ensure a happy life and that has worked out well as it did with my own parents. I did have kids fairly late in life so this probably affects my attitude. It may be different if they were all grown up as I approach retirement but they are still teenagers.

There is nothing wrong with decumulation - you are forcing yourself to work harder and for longer to provide for your own retirement if you're not allowed to eat into the capital, all for the sake of handing over a wad of cash when you die. Your job as a parent is to raise children capable of supporting themselves, not to remove any incentive they have to work - it's all very well and good imagining this generational wealth building up over the centuries, but this is very much a rarity. One generation builds the wealth, and the next spends it.

Perhaps one day we'll get a sensible inheritance tax to discourage this kind of behaviour and allow a slightly more level playing field.

So is it better that one generation builds wealth and a government that has taxed them on it all their working lives gets another bite at it after they die, just to give to those who refuse to provide for themselves? I fail to see how that is any more just than a plutocracy, unless it's not really about a just solution at all.

Higher inheritance tax means lower income tax. Enjoy the wealth you generate, and use it to educate and inspire your children if you like, but I don't think the world benefits from children being given so much money they don't need to learn to provide for themselves. The children of the wealthy have so many benefits already, this is an easy one we can have a go at to improve social mobility.

From a personal point of view, I know I have to contribute a certain amount of money to run the state, and my favourite time for this to be taken from me is after I have died and no longer need it.

Perhaps it's more realistic than that. Taxing housing wealth, for example, would only regather some of that wealth that society has given to people in the first place through the post-war generations' and their governments' efforts in creating affordable housing, efforts that resulted in a high rate of home ownership. Subsequent abandonment of efforts to make housing affordable has handed great wealth to a few generations essentially at the expense of those preceding and now succeeding generations. Taxing that merely allows a portion of that betterment given by society to then be reused by society.

Everyone screams for compensation when society's work negatively impacts their property value. But no one seems to grasp the other side of that coin.

Alternatively, if it's about providing for oneself surely the pension should be means tested rather than money being taken from the young and given to the old.

the paper on decumulation is worth reading but dont think the kiwispend will fly,the kiwisaver lump sum at 65 to some will be the pot of gold at the end of the rainbow, and any attempt to steer it into a supplementary pension will be seen as a betrayal.

If an annuity is brought in is has to be optional. It won't suit many but it would be helpful for a lot of people. Being capped at $12k per year isn't a large amount either. Many who have been in Kiwisaver since they started working will probably exceed the cap.

But it's optional? And with current low interest rates, current retirees are rather stuck for income (particularly given the share market aversion of most kiwis).

What is needed is a proper Superannuation fund. Too give the necessary funds for people to live on in retirement.
What we have is Kiwisaver which is a Political football to be kicked by Politicians.
It is not too hard to organise ask the Insurance Industry how it works?
They had run them for years

To couple your essential income in retirement to the vagaries of the stock market is a terrible idea. To use the Cullen fund in this way is not better than slow withdraws from a private bank fund. Its returns have been good only because it has rolled the dice in a slightly different way and has benefited from the major countries printing money.
To cross subsidize women from men is another very bad idea. There is so much wrong with this concept. In itself, it should be a reason to throw this idea out the window.

Here's an idea!
Get Adrian to fix the OCR at 10% next week.
Those with, say, $250,000 in savings/withdrawals from Kiwisaver get $17,500 per annum, net, from that in addition to their Government Super; the Government gets $7.500 to add to spending coffers from tax (that at current rates is $5000 less than that) and an aging population is set for life!
Of course, there will be a few minor downsides for a few people...
(Seriously. Low-Interest rates have destroyed the norms of finance. That we ( including our KiwiSaver Schemes and Insurers) can't fund ourselves into retirement is just one of the side effects)

(Seriously. Low-Interest rates have destroyed the norms of finance. That we ( including our KiwiSaver Schemes and Insurers) can't fund ourselves into retirement is just one of the side effects)

Man who caused massive problem by wrong analysis and wrong policies after 20 years still continues to repeat his wrong analysis and advocates his wrong policies Link

NZ Super is the same for men and women. We should not discriminate on gender. We do it because we can. it would be better to identify the group whose life expectancy is lower perhaps because of existing disease or family history and the group whose life expectancy is higher.

$12,000 per year seems like a pretty low cap.

As pointed out below by lastlegs, will need to invest six figures in order to get $12k per year annuity. Not that low, particularly given current KS balances.

It will make all the difference to middle income retirees. It is capped because of the implicit subsidies

Best to spend it all soon after retirement while you are fit, before you need to go in to a care home as they will just take our then if you have any money left.

my guess is that the 12000 cap represents 250,000 dollars for an annuity to give that amount per annum to a couple at 65.

I think that would assume an indefinite flow of income? Given finite lifetimes and no need to return the capital, it could probably be a bit less. But, yes, will be at least six figures needed to reach the cap. Not sure of the purpose of the cap - shouldn't this be set up to at least break even after expenses, so the more the merrier? I guess it might not matter as those with seven figures in retirement are not going to be putting large chunks into annuity schemes.

Existing NZ annuity schemes pay around 5% of your lump sum per year if you don't want inflation adjustment. If you want your payments to increase with inflation, more like 4%. Expecting $250,000 to buy you $12,000 a year inflation adjusted is if anything a little optimistic.

I never claimed it was inflation adjusted.I got the figures from before I posted.

No, but the article is suggesting the KiwiSpend will be inflation adjusted. This means it will probably pay less than 5% of capital per year.

Lifetime income offer 5% without inflation adjustment, 3.75% with CPI adjustment.

That is a ball park figure based on the current non indexed annuity on offer. The state does not have the expensive overheads and will index at very least

No thanks govt shouldn’t control my money. Political interference is why I don’t like KiwiSaver. I would love to know the assumptions about rates used, and if they have factored in the effect of fees and tax on returns.

Sounds good to me - annuities should be a standard consideration for retirement and I'll certainly consider them for my baseline needs as longevity insurance. The market in New Zealand seems to be very small and barely known, so a government scheme to grow awareness and boost competition sounds good to me.

Yet another attempt to undermine Kiwisaver. STOP FIDDLING. Let people choose want they want to do with their money. By all means encourage the annuity market, but compulsory or a proxy reduces peoples freedom. Why deny retirees their cruise or car or whatever makes them happy. National Super meets basic needs, their Kiwisaver is the cherry on top.

While I agree Kiwisaver has been heavily undermined over the years, I think this enhances rather than undermines it. I wouldn't agree with an annuity being compulsory, but it's the best option for most people who would otherwise be unable to manage a lump sum without running through their capital. You can still withdraw your capital for the cruise or whatever, but you'll have to balance that against the Government offering you, say, $2000 a year for the rest of your life, guaranteed and inflation adjusted. More options is good in my book.

I don't think they are advocating a defined benefit scheme.

I don't think they are either - it's an annuity you buy with your defined contribution pension. Did my comment come across differently?

Why wait until retiring to get that cherry on top? Withdraw it now for a deposit on a first home.

Agreed. Kiwisaver is a long term contract between the member, the scheme provider and the Government. Unilateral changes to that contract envisaged by the Government should be specific, detailed and clearly advised in each parties manifesto prior to every General Election. The same applies to NZ Super. National elections are a crude way of enabling members to influence changes but they are better than nothing. As Kiwisaver funds grow the tempation for Government and interest group tinkering - however well intentioned - needs to have some member input and influence. As an aside Simplicity has an annuity type product along with the one mentioned below.

What prevents KS members over 65 from setting up a monthly withdrawal themselves ?
Just educate the seniors and let them decide for themselves. No need for a regulated or imposed scheme to drip feed to retirees.

One word - risk. It is far less risky to have an annuity then try to do it by yourself. First - what if you outlive your savings? Not an issue with an annuity, but a big problem with self managed funds. (Sure, you miss out if you die early, but that's a risk for your heirs not yourself, and if its a subsidiary to the Cullen fund - how patriotic - you have just invested in the future of NZ.) Second, to get a decent return one needs to invest in growth assets - risky as an individual, evened out when part of a fund. As the article says, probably not needed by the wealthy but an excellent option for the middle class.

Agreed. An annuity is insurance against living longer than you budget for, and means your needs are provided for even when you lose the ability to manage your own finances.

Does not give longevity protection

I see there is already a well established annuity scheme available in NZ called Lifetime.Directors include Diana Crossan as the Chair (former Retirement Commissioner of New Zealand), Sir Michael Cullen and Martin Hawes. What is stopping retirees investing in this if they want an annuity?

Nothing, but as far as I can tell you and I are the only ones who have ever heard of this. Raising annuities in conversation generally leads to blank faces, and one provider does not lead to a competitive market place. A government scheme could help stoke up some competition and increase awareness of the annuity option.

it looks good on the surface but I think it is a cloaking device for yet another managed fund complete with the usual fees plus an insurance policy that costs 1300dollars a year for every 100k.

The investment balance in the Lifetime scheme goes down every year. And by 90 or so becomes nil. So if one lives beyond 90 it is a plus. Still, from a lay man's view point, it seems like it may be worth putting some of the retirement funds into this. Depends on individual/family circumstances. Not sure how the professional investment advisors would view this type of annuity scheme.
The fact that it is not known or publicised much may indicate something about its utility ?

I don't understand why the option isn't better known here. In the UK, an annuity is the default option, and it's only in the last decade that it became legal to place your pension savings in anything other than an annuity - the fear being that people would spend the lot and be destitute afterwards. Most people do not have the financial knowledge to manage large sums of money so they last potentially 30-40 years, especially when their mental faculties start to fail with age.

You do have to wonder what AMP mgmt.are doing.

They are one of the big Kiwisaver providers and no doubt face withdrawals as ppl hit 65. For the banks they will no doubt try and capture this in term deposits however for AMP it just leaves the door.

Why wouldn't they use their actuaries to create an annuity product that seeks to capture the 65+.

It needs to be one of the big players to get the right actuarial profile but the banks aren't incentivised to... or wont be until AMP use their life actuaries to create a product and actually start attracting kiwisaver 65+ away from the banks.

Launch something like that and perhaps someone might want to buy AMP next time you put it on the block.

Instead of linking the annuity scheme to KS members, why not a separate scheme for 65 years and older run by the Government/Super Fund ? Say invest up to 250k (no more allowed) and get $12000 (tax free) per year ,in monthly pay outs. The pay puts to be proportionate for investments of less than 250k. Guaranteed payments for 10 years (even if the member dies before that 10 years) and if the member dies after 75, 50% of 250k to be paid to the estate. Joining is voluntary for all 65 years and above, but would be specifically targeted to Citizens/Permanent residents who have a KS a/c and have reached 65. KS providers can do the education and marketing. Game ?

Sure, it will be optional at first. But then there will be a co-ordinated softening up, and it will be made compulsory. That will be the end goal.

Smells like someone's worked out that there aren't (boomers) and won't be (millennials) enough savings, and are trying to slow down the outflow of funds.

But retirees /are/ protected from the risk of outliving their savings, inflation, unsuccessful investments, financial exploitation and spending the money too early. That is exactly what NZS does. There simply isn't a problem here

NZS is not enough for middle income retirees

It is plenty for those that had a middle income and decided to save some of it to supplement their NZS. It is not rocket science to realise that if you want to spend more in retirement than you will receive on NZS you need to save the difference while you are still working. The poverty that you speak of is in motivation and planning. NZS is already quite an increase in income for those unlucky enough to be beneficiaries before they retire.

This is wealth confiscation! The probability of dying each year increases with age. Anyone who's accumulated significant wealth in their Kiwisaver will be screwed. If I used the Kelly formula to determine how much of my net wealth I should have in Kiwisaver then the rug gets pulled from under my feet because the rules suddenly change - WTF. We already have an annuity, it's called government super. Honestly, even having this discussion makes me want to invest less in Kiwisaver - or at least divest by somehow using the first home buyers grant.