The Retirement Commissioner wants to see New Zealand’s tenancy laws beefed up to better protect our increasing number of renting retirees.
Speaking to interest.co.nz in a Double Shot Interview, Diane Maxwell says those who reach retirement without owning a home are more vulnerable than those who reach retirement as home owners, so tweaking our tenancy laws to give renters more certainty is a “no brainer”.
“We’re seeing a larger group of renters in their 50s, moving through to their 60s, and that is going to be an issue,” she says.
As a renter you’re at the mercy of your landlord, who could decide to sell their property at a whim.
Commission for Financial Capability (CFFC) survey respondents have raised their concerns over the toll moving house has on an elderly person. It’s tiring, expensive and emotionally draining.
Furthermore, without knowing how long you may be able to stay in your rental for, do you get to know your neighbours? What do you invest in the surrounding community?
“We need to be looking at those tenancy laws, saying, ‘Do they protect the tenant enough? Do they protect the landlord in the right way?’” Maxwell says.
“We’ve got to change our mind set over renting. Renting can be a choice you make and then you need some protection around that choice.
“So I think there should be options in the market for people to say, ‘I’m looking for a long-term tenancy', and a landlord to say, ‘I’m looking for a long-term tenant’…
“To some extent that’s available today, but I think it could do with a bit of a tweak.”
Looking to Germany
Economists Shamubeel and Selena Eaqub, in their 2015 publication ‘Generation Rent’, say more than half of tenancies in New Zealand last only 10 months, whereas owner-occupiers spend an average of seven years in their homes.
The Eaqubs look to Germany, where 57% of the population rents, for solutions to improving renters' rights. For example landlords have been barred from increasing rents in Berlin by more than 10% above the local average rate.
Maxwell is cautious about advocating for these sorts of measures to be introduced to New Zealand.
She says capping rents could put landlords, affected by fluctuating interest rates and other market forces, at risk.
For example, a landlord will be put under a lot of pressure if interest rates rise aggressively and they can’t change the rent they charge.
“I don’t think it’s easy. I’m sure there are some great examples from around the world that we could steal,” Maxwell says.
Super rates need to reflect the fact living on your own is more costly
As well as renters, Maxwell says single people are also more vulnerable than those in relationships, when in/approaching retirement.
She agrees there is an increasing number of single person households in New Zealand, as divorce becomes socially acceptable and more people choose to live on their own.
She says the CFFC has received “heart-breaking” responses from single parents, who having spent 20 years raising their children, only to look up and realise they’re in financial trouble.
“[Having a single person household] does make for more expensive living, in that you still have to heat the house no matter how many people are in it, you have to have the lights on, you still have to pay for your insurances… and if you’re dividing it by one, that is certainly more expensive.
“We’re finding people living alone are telling us they feel more financially vulnerable and if you look at the numbers, they probably are.”
Single retirees living alone currently receive New Zealand Superannuation of $770 a fortnight after tax, whereas retirees in relationships receive $592 (assuming they receive no other income).
“Certainly [through Super] we need to reflect the fact there are increased costs in living alone. The question is, to what degree you do that?” Maxwell says.
“You might have couples watching this saying, ‘Well actually we’ve got costs too’. They might have medical costs that are high. There might be all sorts of things going on that elevate the costs for them and that’s the difficulty with some of these issues.”
Single or not, Maxwell recognise those approaching retirement may be put under additional financial pressure, supporting their elderly parents or adult children with costly education or home ownership pursuits.
They’re “getting pulled in lots of different directions financially” and that’s “causing them some grief”.
Affordable housing key to curbing isolation
Recognising the fact globalisation has also seen families separated and dispersed around the world, Maxwell is wary of our elderly feeling isolated, and this impacting their physical and mental health.
“We all look for connectedness and we all look for meaning. A number of the people who keep working through their 60s and sometimes 70s tell us it’s because they’re physically fit enough to want to do that, but also, they love the connectedness...”
“I’m conscious of the way our neighbourhoods are developing too. We’re far more likely to have big fences to wall ourselves off… Some of those impulsive conversations and connections across the garden and across the street, may not happen in the same way.
“Having said that, as people stay physically fitter longer, there are still lots of opportunities to get out and be involved with different groups.”
She says technology, like Skype, has also helped people stay connected.
“I don’t think we’re heading to complete disaster…
“But I think isolation really is a challenge as people move into that later stage of retirement, where they can’t jump in the car and go see a friend for a cup of tea.”
While retirement villages and rest homes are solutions for some, Maxwell recognises not everyone can afford these: “Which is where low cost, dry, clean, affordable housing for older New Zealanders who need to rent is a critical thing.”
Tougher rules around disclosure and more ‘feisty’ retirees needed to improve financial advice
Taking a broader view of the issue of vulnerability, the CFFC recognises anyone in, or approaching, retirement is vulnerable in the sense they have less time to recoup any investment losses.
Maxwell says it is vital retirees protect their hard-earned cash.
“You can’t take risk out of a market, because that’s how a market works - risk and reward.”
Yet you should try to reduce the level of risk you expose yourself to. Maxwell urges people to take the time to do their due diligence before making investment decisions.
“Never think your mate down at the rugby club is a financial adviser, unless he is a financial adviser.”
Maxwell recognises those who use financial advisers may not be aware of the fact the financial advice they’re receiving may be skewed by the commission payments their advisers receive from various financial service providers.
While the Government has indicated it won’t follow the UK in banning or capping commissions in its review of the Financial Advisers Act, it has said it will require advisers to be more open in what they disclose to their clients.
People hate paying for advice
Maxwell acknowledges: “Where things get murky is where you have a trail commission where an adviser might be tempted to churn you into another policy to reactivate another commission stream.”
Yet she recognises “people hate paying for advice”, so doing away with commissions could see advisers recoup these losses by putting their prices up and thus prevent people from using their services.
What we need is: “More disclosure and more feisty retirees/near retirees going, ‘You gotta explain this to me’.”
Maxwell suggests people be assertive in asking their advisers how they’re paid, and making sure they understand the benefits of changing insurance policies, KiwiSaver providers, etc.
“It’s up to us to ask the hard questions, but also as we go through the Financial Advisers Act review, I hope that [issues around commissions] keep being challenged and challenged, so we get to a good place with people understanding truly what they’re being charged.”
As for investor education around KiwiSaver, the CFFC has been calling for it to be made mandatory for KiwiSaver providers to disclose fees in dollar terms, not just percentages, on their members’ statements.
Maxwell says: “The nirvana for us is that that information is loud and clear on the statement. That’s where we’re heading and I hope that’s where we get to.”
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