Tuesday 19th June 2012
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Good financial advice is as important as the act of saving for retirement, says the Institute of Financial Advisers in response to proposals from the Financial Services Council that New Zealanders be encouraged to save 10 percent of their annual income in a super-charged KiwiSaver Plus scheme.
IFA president Nigel Tate gave the FSC proposal "qualified support", but said it missed the importance of individuals taking good financial advice, and there was no "one size fits all" answer when it came to the recommendation to include income replacement insurance in such a scheme.
The FSC report, launched on Sunday, added to the pressure on Prime Minister John Key to renege on his commitment to keep the age of pension entitlement at 65, rather than raising it to 67, as the Labour Party has pledged to do because of what it says is the unsustainable cost of the current New Zealand Superannuation pension scheme as the population ages.
That prompted Key to suggest the FSC, which represents most of the banking, savings and retirement funds management industry, of self-interest.
"With the greatest of respect, they happen to be backed by investment firms who have an interest in KiwiSaver contributions going up," he told his post-Cabinet press conference Monday.
The KiwiSaver Plus proposal would raise employer and employee contributions from 3 percent each of annual earnings, the level soon to be attained, to five percent each. That would effectively mean a tithe on wages and salaries, with 10 percent of annual income socked away for retirement.
However, Tate said “savings on its own isn’t enough."
"The real risk is that savers don’t invest their money wisely – or draw down at the right level in retirement. The right mix of cash, shares and so on is vital.
“As the report says, people will be living a lot longer – will their money last? If they don’t make the right choices, they could wind up living on little more than the state pension”.
Insurance, even more than savings, was not a one-size-fits-all, said Tate. “Everyone is different, and every product is different. Having insurance in KiwiSaver Plus wouldn’t necessarily meet someone’s needs during their entire life. There could be some potentially big risks that simply aren’t covered at all, or not to the right level.”
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