Learn » Updates » New KiwiSaver fund guarantees retirees income for life


New KiwiSaver fund guarantees retirees income for life


22/09/2017

In a first for KiwiSaver, Simplicity is launching a new fund that guarantees its members a minimum income of at least 5.00% per annum, after tax and fees, for the rest of their lives.

From age 65 on, members of Simplicity KiwiSaver Scheme invested in the Guaranteed Income Fund will be able to receive a fortnightly income on the same day as New Zealand Superannuation. The drawings (after fees and tax) will come from their KiwiSaver Scheme which is structured like a balanced funds.

Payments are guaranteed for as long as the investor lives, regardless of what happens to investment markets or interest rates during their retirement. 

To be eligible, members must have been in KiwiSaver for a minimum of five years. 

Sam Stubbs, managing director of Simplicity KiwiSaver Schemes, the new fund provides welcome choice for older New Zealanders. 

 \"Too often retirees have to choose between very low term deposit rates with break fees, or overly risky investments. They deserve better,\" he says.

Nothing is locked in, and there are no exit or break fees.  Members have full access to their money at any time, and the fund balance is paid to their estate if they pass away.

The payments are designed to top up the money retirees get from NZ Super, in order to help them meet their regular living expenses.

The Fund can also guarantee members’ income before they retire, protecting it from any market downturns.

Simplicity’s guaranteed income rates increase with age, starting at 5.00% per annum if a member starts at age 65, increasing by 0.10% each year thereafter. 

So, for example, a member would get 5% if they started getting their guaranteed income at age 65, rising to 7.5% for those who started at age 90. A single rate is guaranteed for life.

The minimum investment is $50,000 a year and applicants can switch into the fund from 60 on. 

Investors’ income is also paid after both fees and tax eg. someone starting at age 65 with $100,000 in their KiwiSaver account, would receive a guaranteed income of $192.31 every fortnight, for life.  The total fund charges are $30 per year plus 1.6% per annum. 

 An online calculator at www.simplicity.kiwi allows members to see exactly how much income they would get after tax and fees. 

The fund is invested in a balanced portfolio of 3,000 investments in 23 countries; 55% is invested in investment grade bonds and 45% in local and international shares. Investments are managed by Simplicity as well as Vanguard, the world’s second largest asset manager.

Market movements and income payments will change the value of a member’s investment in the fund, but the income payments always remain the same, and are guaranteed for the entirety of a member’s life. 

If the value of a member’s investment in the fund falls to zero, an insurance policy guarantees them the same income payments for the rest of their life. The insurance policy is provided by Lifetime Retirement Income, a licensed insurer regulated by the Reserve Bank of New Zealand. 

The Lifetime Income board comprises some of New Zealand’s best-known retirement income advocates including Sir Michael Cullen (former Deputy Prime Minister and the founder of KiwiSaver) and Diana Crossan (former Retirement Commissioner of NZ). 

Currently Kiwis over the age of 65 cannot become new members of any KiwiSaver scheme however that restriction is currently under review. 

Ask Artie