Talk Money with Tony Field – August 27, 2015

  • 27/08/2015
The Government axed the scheme on Budget day this year (file)
The Government axed the scheme on Budget day this year (file)

A retirement industry lobby group is arguing that the Government made a mistake axing the KiwiSaver $1000 kickstart incentive.

The Financial Services Council says the Government was wrong when it concluded that KiwiSaver was only marginally increasing savings for members.

The Government axed the scheme on Budget day, arguing that this would save it $500 million over four years.

But the Financial Services Council (which represents investment and life insurance companies) says its research shows KiwiSaver "is likely to give middle and lower income New Zealanders a higher standard of living in retirement".

The report was prepared for the council by the New Zealand Institute of Economic Research.

The Government axed the $1000 kickstart after receiving advice from Treasury that KiwiSaver has not substantially increased savings. Treasury's advice was based on a joint agency evaluation of the savings scheme.

The Financial Services Council says its own research focused on people who were likely to have a lower standard of living in retirement.

It says it found that:

The association's chief executive officer Peter Neilson says the report also raised concerns that the Government's evidence for cancelling the scheme was too narrow.

He says the data was only drawn from the years 2007 to 2010, a period which included the global financial crisis.

"A longer sample is required to disentangle the impact of financial market volatility from savings behaviour."

Peter Neilson says one of the benefits of KiwiSaver has been that it has attracted young and low-income savers. "These groups typically do not participate in formal savings schemes."

He argues that the Government also failed to properly look at the benefits of diversification.

"There is a large concentration risk in financing retirement given the composition of wealth in New Zealand which is highly concentrated in real estate and New Zealand assets."

He says KiwiSaver will significantly reduce this risk over time as portfolios include more shares and more fixed interest investments.

The Government says it "is strongly committed to KiwiSaver. It has been successful in attracting members, with 2.5 million New Zealanders having a KiwiSaver account and together receiving $2.5 billion in kick-start payments since the scheme started in 2007."

It believes there are still incentives for people to join.

"Auto-enrolment when starting a new job, the 3 percent employer contribution and the member tax credit of up to $521 each year means people still have an incentive to sign-up to KiwiSaver and to keep saving for their retirement.

"Because of the incentives that remain to join KiwiSaver, and the high levels of membership already, the $1000 kick-start payment had run its course."

It says the removal of the kick-start payment will save over $500 million over four years, but it will spend over $700 million on the tax member credit in 2015/16.

US stock prices have surged, with much of the buying happening late in the trading day.

The Dow Jones Industrial Average rose 3.95 percent, or 619 points.

The broader S&P500 gained 3.95 percent and the tech-heavy Nasdaq did even better, rising 4.24 percent.

To put this in perspective, the S&P500 had lost over 11 percent in the prior six trading days.

All 30 companies included in the Dow made gains, with Merck rising 6.4 percent. Apple, JPMorgan Chase, Microsoft, Nike, Visa and ExxonMobil all gained 5 percent.

The US markets had opened higher, but unlike yesterday the upwards momentum continued.

European markets had closed earlier, finishing down.

The German DAX lost 1.29 percent. London's FTSE fell 1.68 percent and France's CAC40 1.4 percent.

The Shanghai Composite had another disappointing day, falling 1.3 percent yesterday, despite the People's bank of China announcing it would be cutting interest rates again.

Japan's Nikkei rose 3.2 percent. The NZX50 finished 0.6 percent lower. Australia's ASX200 gained 0.7 percent.

The New Zealand dollar has fallen against the US dollar this morning.

The kiwi was trading at 64.31 US cents at 8am (the time when Wall Street closed), compared to around 64.80 yesterday.

It was 90.30 Australian cents, compared to 90.89 yesterday morning. It was buying 56.72 euro cents, compared to 56.27 euro cents yesterday.

The kiwi was 41.55 pence, compared to 41.30 yesterday. It was 77.10 yen.

Credit has to be given to Air New Zealand for its record profit result.

The airline industry is notoriously difficult and plenty of airlines are losing money. So Air New Zealand and its 11,000 staff have good reason to celebrate the record pre-tax profit of $496 million. That is an increase of 49 percent on a year ago.

Air New Zealand says that was achieved by growing its sales revenue in Asia, the United States and Australasia. There has been a big improvement in sales and revenue across those markets.

The airline is also doing a better job of controlling its costs and it got a big lift from lower aviation fuel prices.

But there are challenges, including increased competition from airlines like Jetstar.

The lower aviation fuel prices are also likely to see more competition on some international routes.

A big question is the impact of the China slowdown.

Chief executive Christopher Luxon says the answer is to focus on the higher wealth customers, particularly those who have not been to New Zealand before for a holiday.

Here is Paul Henry's interview with Christopher Luxon.

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