Welcome to the April issue of the Select Wealth Management Dashboard Newsletter. April is always the month where Kiwi Superannuants get their annual pay increase. This year, the national superannuation payment increased from $763.64 to $799.18 (after tax) per person, per fortnight, for a married couple. This equates to a total of $41,557 per annum (after tax) for a married couple. WOW. Every year when this payment goes up, I take a minute to consider how generous it is and how lucky we are as New Zealander's to have this benefit. Every New Zealander over the age of 65 receives this basic living allowance - it's universal, not means tested, and easy to claim and administer. It really is a great system. If I compare this to our closest neighbours (Australia) and my birth country (South Africa), then it becomes even more apparent how generous our system is: Country Pension amount Age of Eligibility Means testing Income testing New Zealand NZ$41,557 p.a. 65 No No Australia AUD$43,731 p.a. 67 Yes. Your pension is reduced by $3 / fortnight for every $1,000 of assets you own over $451,500 (excluding the family home). This scale results in no pension once you have assets of more than $1,012,500. Yes. Your pension is reduced by 25 cents per dollar if you earn more than $360 per fortnight (combined) from wages. South Africa ZAR44,640 p.a. (NZ$3,395 p.a.) 60 Yes. Your pension is reduced if you have assets of greater than ZAR2,440,500 (NZ$218,411) including the family home. Yes. Your pension is reduced if you earn more than R172,560 (NZ$15,443) per annum (combined) from wages. *Based on a married couple living together rates So you can see how generous our system is compared to peers. Average life expectancy in New Zealand is currently 82 years. So another way I think of the superannuation is to ask the question "How much capital would I need to invest to generate $41,557 per annum (after tax and inflation adjusted) from the age of 65 to 82?". The maths is quite simple. If you assume a 2.5% per annum inflation rate and a 4% return on investment, you would need about $640,000. At the age of 82, the money will have run out... So basically, the New Zealand Super payment is the equivalent of every married couple having saved $640,000 throughout their lifetimes. Tidy. The concern of course is "how sustainable is this benefit moving forward?". We've all heard the anacdotes about the aging population. The table below sums this up: Year Number of people over age 65 % of total population 2006 495,600 12.3% 2013 607,000 14.3% 2018 715,200 15.2% 2023 868,600 16.5% 2028 (forecast) 1,020,200 (forecast) 19.5% (forecast) So the percentage of the population on this benefit is gorwing, and forecast to continue growing. Things may have to change... The options to manage the cost of this benefit are: Make the age of entitlement later (e.g. 67) Introduce means testing or income testing Reduce the benefit payment Allow a larger portion of the government budget today for funding the pension in the future A combination of the above Means testing is possibly the most contentious of the above. Conceptually, it makes sense to suggest that those who have accumulated material wealth in their own right can afford to forego New Zealand Superannuation. But, let's think about this for a moment. In a way, New Zealand Superannauiton is already means tested. Wealthier people are typically people who have earned more in their lifetimes, and as such have paid more tax in their lifetimes. The example below illustrates this: Couple earning $100,000 p.a. each Couple earning $50,000 p.a. each Total tax paid $3,965,105 $1,576,523 *Tax paid based on current tax brackets **Assuming each partner earns their income from age 25 to age 65 ***Incomes increasing by 2.5% per annum So while the couple with bigger incomes pay more than 2 ½ times the amount of tax as the couple on lower incomes, they still only collect the same superannuation benefit once in retirement. So the higher income earners have "paid" more for the same benefit in retirement - a form of means testing. In fact, in their working lives, they will pay $$2.38 million more in taxes. That's significantly more than the $640,000 that we calculated New Zealand Superannuation to be worth earlier... But to me, more important than the maths of it, is the phycology of it. It seems unreasonable to punish the people who save for their retirement by docking their Superannuation entitlement. Using our couples from the above table, the couple earning $50,000 p.a. each could live very modest lives, be prudent with their money, save well, and accumulate wealth. Their mates down the road who earn twice as much could spend it all on liquor, fast cars and gambling and accumualte no wealth. Why punish the couple who made good financial decisions and reward the couple who made poor financial decisions. This seems unfair - the incentive should be the other way around. It's hard to tell where this debate lands or how / if it's resolved. But I think the reality is that the 25 year old starting out today will most likely not have the luxury of the New Zealand Superannuation as we know it now. If you are already collecting New Zealand superannuation, then accept the pay increase gratefully, and without guilt. It's a very generous payment and increase, but then you did pay your taxes and you deserve your pension... In terms of the markets, the past 30 days have been challenging for share markets. Most markets are down about 1% to 3%, with the outlyers being the London Stock Exchange (up 2.24%) and the Japanese Nikkei (down 6.72%). Mortgage and terms deposits rates have edged down a bit, and house prices have seen a long awaited tick up. Here are the numbers for the past 30 days:   In terms of your Select Wealth Management portfolio, you should by now have received your performance report for the March quarter - which makes for pleasant reading. As always, if you have any questions about your report, please do not hesitate to contact us - we are here to help. There is nothing more to report regarding Select Wealth Management right now. The investment universe seems to be in a holding pattern at the moment - a period of consolidation until the next obvious "thing" to warrant change - either up or down. But for now, it's more of the same. Finally, a quick update on our Giving Back program for Ellie's Rescue and Rehome. I am pleased to confirm that we are half way to our target of $2,500. Hopefully we can come home with a canter and get the next half by the cut off date of 30 June. As always, thank you so much for the introduction to your family and friends to allow us to continue this initiative - we really appreciate it. To keep track of the Giving Back program visit https://mifinancialplanning.co.nz/giving-back.html That's all for now. Chat again soon Warm regards Dave and the team at Makowem & Isaacs Financial Planning dave@mifinancialplanning.co.nz

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