New investment option to target KiwiSaver retirees

Former ACC boss, Ralph Stewart hopes to launch a new investment product offering income for life options in the next three months.

Ralph Stewart, the former head of AXA and ACC, says he hopes to have a new style of retirement income product on the market within three months.

Stewart's company, Retirement Income Group, raised $455,300 on equity crowd-funding platform Equitise last month and is now waiting for Reserve Bank approval before its annuity investment product can be made available to the public.

Annuities which typically provide a regular income for a person in retirement until they die in exchange for a lump sum investment have not taken off in New Zealand in the past.

But Stewart is hoping his new version will be a success by tapping into a growing pool of KiwiSaver money and over-coming past turn-offs.

"The old ones are not fit for purpose."

Stewart said those products were run largely by insurance companies, were taxed at a high rate and had typically low returns because they only invested in fixed interest investments.

People were also put off by having their money locked in and they were expensive to buy into because of Reserve Bank capital requirements on the provider, he said.

His new product will put investor's money into a fund which uses a portfolio investment entity (PIE) structure which means returns are taxed at the individual's tax rate.

That money will be invested in a balanced fund with a mix in equities and fixed interest investments.

It will aim to have an annual average return of 6.5 to 7.5 per cent before fees and taxes are taken out.

Under the old style once retirees had handed over their lump sum of money to buy the annuity they couldn't get that money back.

If they died the money was kept by the company. Those who lived longest benefited the most.

The new product will allow people to take their money out again.

For the first three years there will be a penalty fee of 1 per cent but after that there will be no penalty, Stewart said.

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But it won't be designed for those who have little in the way of savings.

The minimum amount suggested is $100,000 with retirees getting to withdraw 5 per cent a year - giving around an extra $100 a week to live off on top of New Zealand Superannuation.

It will cost 0.95 per cent of the amount invested per year plus a 1.3 per cent insurance premium paid yearly to ensure the income is guaranteed.

Stewart said there was little point in those with low savings buying into the fund as the regular income it produced had to be "meaningful".

But he insisted it was a product for "middle New Zealand".

Stewart is banking on KiwiSaver enabling more people to have large lump sums of money at retirement. So far the average balance is around just $10,000.

Stewart said modelling showed over the next 15 years 500,000 people would be eligible to take their money out of KiwiSaver with an accumulated savings of around $36 billion.

Of that money $19 billion would be from people with an account balance of $60,000 or more.

"It is a big market."

At the moment Kiwis can choose to take their money out of KiwiSaver and spend it how they wish.

There is no requirement to spend it evenly over their retirement lifetime.