Is your retirement approach 'Hansel and Gretel'?

Tuesday, 11 September 2018

If you're counting on your house giving you a retirement windfall, you might be disappointed.

Tax incentives and more investment options are needed to get New Zealanders saving, because fewer of us will have a house to rely on in retirement in future, one investment manager says.

David Boyle, former group manager of investor education at the Commission for Financial Capability and now working for Mint Asset Management, said New Zealanders needed more information about how to prepare for retirement, to avoid them falling into the 'Hansel and Gretel' trap of expecting to live on the proceeds of their houses.

'We are living longer and many of middle New Zealand have most of their assets tied up in their own homes,' he said.

But as home ownership rates fell, and people started to buy houses later in life, they had less wealth tied up in their properties to access on retirement. Home ownership rates hit their lowest level in 66 years, last year, at 63.2 per cent.

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'We are living longer and many of middle New Zealand have most of their assets tied up in their own homes,' David Boyle said.

'We need to start finding better ways to help New Zealanders prepare for the non-working years,' Boyle said.

'This means providing them with greater education and information before they get there along with other investment options. This will require a combination of government, and the financial services industry working together to get a better outcome for all our future retirees.'

He said work done by the commission had shown almost 50 per cent of people planned to sell their existing house to help supplement their savings in retirement.

Reverse equity products such as Heartland's show people drawing down lump sums to fund things such as operations or travel. A spokeswoman said the average loan amount was $60,000.

Just over 40 per cent of respondents to the commission survey said the pension would be their main source of income.

Boyle said there needed to be more products to help people make their money last in retirement.

There also needed to be further examination of lifestages-style KiwiSaver funds that pushed people into cash by the time they reached retirement age.'That's not the right asset. There needs to be a component of growth. How do you get people to understand the cost of living?'

Boyle said KiwiSaver providers and other financial services firms should provide data about their customers so people could view their habits in aggregate. 'Then you can see where you are spending your money, see if you're spending 2 per cent of your income on coffees.'

That data could be used to project what would be needed to maintain that lifestyle once people retired, he said.

Before 1989, neither income that went into private pension schemes nor the returns generated were taxed. Now, contributions come from taxed income and returns are taxed, which creates a negative compounding effect.

Boyle said people would generally look for the most tax-effective investment approach, which was why New Zealanders had a love affair with property.