Q: My husband and I are in our mid-50s and we've been discussing how much pension we will get if we retire when we reach 65.
A friend told us that all New Zealand citizens receive the same amount (fortnightly), whether you have been working or not, as long as you qualify. Is this true?
You see, my husband and I have been working since our early 20s and we thought that our pensions will depend on the amount of tax we have paid.
We have a friend who has not been working. She chose to have 10 children and it seems that she has not planned to find a job when all her children are old enough to be on their own because, according to her, we will be getting the same pension anyway.
We're not jealous, but if this is true, I think it's quite unfair to people who have been in the workforce since their younger years.
Could you please enlighten us about how much we receive if we decide to stop working at 65, or the ways we can prepare ourselves financially for retirement.
A: The amount of NZ Super you receive has nothing to do with whether you've been in paid work or how much tax you've paid.
This is unusual. While each country's government pension scheme is a bit different, the University of Auckland's Retirement Policy and Research Centre says ours is an outlier, certainly among so-called developed countries.
Internationally, experts praise New Zealand for taking care of all its older people, not just those who have been in paid employment.
That might not sit well with you, but keep in mind there are many reasons why people have been out of the work force, including health problems.
Perhaps you can take comfort from the fact that, because you've worked all these years, you should have more savings than non-workers, which will boost your income in retirement.
We should note here, though, that NZ Super payments do vary -- taking into account whether you are married or a single living with others or alone, and so on. They also vary with your tax rate.
Current fortnightly payments range from $749 for a low-income single person living alone to $437 each for a higher-income married couple. In some circumstances payments are lower. The amounts increase every April 1 to keep pace with average wages.
Note that payments start at 65 whether or not you are working.
For more info see tinyurl.com/sortedNZsuper. At the bottom of that page -- which is on the Sorted website -- are links to tools to help you work out how much to save for retirement.
Q: I am following up on a question I asked you four years ago about KiwiSaver fund performance.
At the time I was invested in the AMP Aggressive fund and I noticed that AMP's performance was languishing at the bottom compared with its peers.
Luckily, after your response I decided to diversify and I invested my wife's KiwiSaver money with OneAnswer international share fund (returning a mere 11.8 per cent per year over five years!), but kept my KiwiSaver invested with AMP.
Fast-forward four years and reviewing AMP's performance, using the December 2015 report from Morningstar, I notice that AMP is still an appalling fund manager.
Looking at five-year returns, AMP's funds are ranked as follows:
• Moderate, 10th and 11th out of 11
• Balanced, 15th and 17th out of 17
• Growth, 17th out of 19
• Aggressive, 7th out of 7
• Cash, 10th out of 10
I am sure that AMP will defend itself by saying it is due to its exposure to emerging markets (four years ago it blamed property investments), but this is unacceptable. Even its cash fund is bottom of the pile. How can it defend this? I'm writing not for advice, but more as a "public service announcement" to make people aware about how important it is to track fund performance and make changes accordingly.
As an example, if someone invested in the top-performing fund (Aon Russell Lifepoints 2045), over the past five years their return would be 56 per cent higher than in the AMP Aggressive fund.
I am just relieved that I gave up on AMP some time ago, but feel for the ones still investing with it, blissfully unaware that their hard-earned money is being looked after by a dog.
A: Could your public service announcement be more of a public disservice?
At least you're looking at five-year returns. It's meaningless to compare fund performance over, say, one year. Funds that do really well over long periods quite often have short down periods. Still, even over five years a good fund can do poorly.
You're quite right, AMP does attribute its bad showing to the different way it invests.
"The investment approach for AMP Capital managed funds (including the AMP Aggressive fund) is to provide better diversification over the long term (which is especially important when you're saving for retirement) and invest in a wide range of assets, some of which a number of competitors may not hold; for example, commodities and emerging markets," says Therese Singleton, AMP's investments and insurance general manager.
This approach is a contributor to differences in recent fund performance relative to other fund managers, as domestic shares have been particularly strong while some global assets have underperformed. However, it is important to recognise that markets go through cycles, some longer than others.
On AMP Capital's managed Cash Fund, she say it's invested in "highly rated, low-risk securities, and the benefit of forgoing slightly higher returns is much higher liquidity, the advantages of which were well demonstrated during the global financial crisis."
In the longer term, Singleton says, "We believe there is yet-to-be realised value in the AMP Capital managed portfolios."
And, she adds, "Time and again, selling underperforming funds and buying recent winners has been shown to detract value."
That's quite true. And there's logic to it. A fund that has performed particularly well is likely to be heavily invested in types of asset that have had a good run lately. And those assets are more likely to do poorly in the next period, because everyone's leapt on the bandwagon and they've become overvalued.
Lots of research finds that people who switch providers, chasing good returns, end up considerably worse off than the stayers.
Having said all that, your list of AMP's performance rankings makes worrying reading -- given that it's over five years and across such a wide range of fund types. I wouldn't blame AMP KiwiSaver members if they look around at alternatives.
Please, though, don't switch to another provider on the basis of performance. Instead use the KiwiSaver Fund Finder on sorted.org.nz. Check first whether you're in the right type of fund for you, and then choose a fund based on low fees and good services. Unlike performance, the level of fees and services tends to stay much the same from year to year.
Q: As an accountant working on behalf of a number of rental investors, and an investor myself, I must comment on your negative view of "above average rents for an above average house". In my opinion it's a fantastic view for a landlord to have, and shouldn't be derided.
Landlords need to keep their properties in a fit and acceptable condition, but that is really quite a low bar. It is great that we have some landlords who want to be in the upper quartile of quality -- but it is an investment, and they need to also have a shot at profits to match.
While I certainly agree that the cost of housing (both renting, and buying) in Auckland is completely ridiculous, it is neither the fault nor responsibility of individual landlords to fix the market. Not to mention that at present Auckland is a much cheaper city to rent than own in. Investors buying now will be subsidising their tenants for years to come, even if interest rates remain this low.
Your example of the woman earning $360 and paying $240 in rent is horrendous. It is just one example, but I am sure there are plenty more. I believe the solution would be for all those like them to abandon Auckland. Move elsewhere.
Don't get me wrong, it would be disruptive and unpleasant for many families, but also very disruptive to the fabric of Auckland itself. This sort of disruption is what is needed to get those in power to fix the city.
The subsidies you mentioned have just delayed this problem for the beneficiaries, and made the situation much worse for those who don't qualify. I don't know what the fix is, but it just won't happen unless something really shakes Auckland's core.
A: Landlords subsidising their tenants? Sure, rents are low relative to house prices, but surely you're not suggesting that altruism drives new landlords? We all know it's the desire for a large capital gain.
As for tenants abandoning Auckland for the good of the city, this is unfair to you but I can't help thinking of a passage in Charles Dickens' A Christmas Carol. When Ebenezer Scrooge suggested the poor could live in prisons or workhouses, he was told, "Many can't go there; and many would rather die."
"If they would rather die," said Scrooge, "they had better do it, and decrease the surplus population."
Q: I was intrigued reading the letter from your correspondent about winning so much in competitions.
I also go in for some competitions, not as many probably, but I have never ever won anything. Some people are just lucky. I had a friend like that who was always winning things.
A: Keep at it. Luck does change. When you win your first million, let us know!
Homes on the water
Q: I was intrigued by the letter "A Home Afloat". It looks like one of Auckland's best-kept secrets might be out. After almost two years of life "off the grid", I can certainly endorse your writer's sentiments. In addition, the "decluttering" of life that this entails is wonderfully liberating.
The Auckland region has the services that make such a life very practical. Add in the availability of laundromats, and internet shopping from supermarkets, with delivery by ferry or water taxi where necessary. A life of variety and interest can be achieved without restrictive complication.
Boats, of course, are an almost infinitely variable cost in this equation. There are, however, people whose means cover a wide range living like this on the New Zealand coast. For those in tune with Auckland's daunting property market, a very comfortable option is possible for a cost rather less than a CBD "shoebox apartment".
A: Two intrigued readers in a row!
Good point about decluttering. On boats every cubic centimetre tends to be used, but space is still limited. Living aboard would certainly force some choices about what you really need. And the internet must make not just shopping much easier for you.
More on floating homes next week.