The implications for insurance planning from KiwiSaver experiences and more daily news

A story has emerged of a man who applied to withdraw the full amount from his KiwiSaver account after getting into a car crash, losing his job and failing to keep up with his mortgage repayments and help his mother living in Japan. His bank allowed him to withdraw just $11,000 from the $40,000 he had saved.

“A man who was only allowed to withdraw $11,000 from his KiwiSaver account after crashing his car, losing his job and struggling with his mortgage is a good example of misunderstanding about what the retirement savings scheme is for, experts say.

The man complained to Financial Services Complaints Ltd (FSCL), an external disputes resolution scheme for financial services providers, unhappy he could not withdraw more.

He had about $40,000 in his KiwiSaver account and applied to his bank, also his KiwiSaver provider, to withdraw the full amount so he could buy a new car to allow him to get to job interviews more easily, pay off some of his mortgage to reduce his payments and help his mother, who was living in Japan.

He was only allowed to access $11,000.”

The KiwiSaver trustee informed him that they would give him money to help with the minimum repayment for his mortgage but said that he didn’t need a new car as he could use public transport. The trustee concluded that paying for his mother to visit wasn’t a minimum living cost.

"The man said the money in KiwiSaver account was his and it was ridiculous he was not allowed to withdraw it to help him in a difficult time.”

Upset the man took his case to the FSCL. But the FSCL backed the decision of the trustee saying that it was reasonable. The FSCL highlighted that KiwiSaver withdrawals are intended for first home purchases and relief from serious financial hardship, and believed that the man qualified to accessing a portion of his funds to cover his living expenses.

Financial adviser Liz Koh commented saying that she didn’t believe that rules around KiwiSaver withdrawals should change as there are always ups and downs in life. Instead, Liz believes that people should be prepared for unexpected events.

“Financial adviser Liz Koh said she did not think there should be more flexibility around withdrawals. Life always has ups and downs, and people need to learn to be prepared for the times in life when things don’t go so well. When times are good, savings should be built up as a buffer for when things change for the worse, as inevitably they do.” Click here to read more

Koh makes a good point, with important implications for wider financial planning, and also for insurance planning: an emergency fund is probably the foundation for all financial planning. The immediate buffer between the unfortunate realities of chance and misfortune in the real world and your own quality of life. Many people are finding this buffer to be inadequate. It also highlights an issue with KiwiSaver that reduces flexibility - Kiwi savers cannot expect to treat the fund as if the money is their own. In addition to an emergency fund, to provide any comfort above that necessary for 'minimum living costs' as seen through the eyes of a KiwiSaver trustee, then savers will require substantial additional resources and ideally, a good insurance plan. 

In other news:

The Digital Actuary Virtual Summit

FMA: FMA not backing an investment style despite report

Kōura looking to improve its digital advice platform - the struggle is conversion

Rupert Carlyon, Kōura founder has said since going live, they have given advice to 3,000 people through the company’s digital advice platform. They are looking to roll out new messaging to improve user experience and understanding of their products. Click here to read more

The internet is a great platform for data-rich financial services. Since its earliest days financial services (led by sharetrading) have been a leader in e-commerce. But there is a catch. It has always been difficult to convert a lot of interest into action. We can easily deliver data, calculators, and content - and still struggle to achieve connection, engagement, and action. This is the overarching problem with digital. It is worth working on, but it is hard. 

I was told to stop talking about insurance...

In response to my recent call for help to identify links between insurance and retirement policy, I was told in the nicest possible way that... there aren't any, based on the boundaries drawn by the terms of reference. Although in some respects, there have already been some modest links identified, such as providing for early access in the case of life shortening conditions, which could mean that early access to funds is needed, but not necessarily available under current terms. More certainty around those rules would help with insurance planning. 

On another note, it sparked an interesting debate that included: 

  • whether insurance in superannuation had been helpful, in Australia
  • whether a state mandated minimum insurance package would be helpful
  • what might form part of such a package

For the record, my answers are: 'probably not' to the first two, and therefore 'not applicable' to the last. 

Call for financial adviser opinions on retirement policy interactions with insurance

This is an appeal for advisers to help out with opinions on how retirement policy interacts with insurance. 

Submissions are now open until 31 October for the CFFC's Review of Retirement Income Policies -

I do not normally work on investment issues, and won't make a substantial submission on this one either. However, I am interested to see if there are significant issues of interaction between this policy and insurance provision.

I do expect that some will call for KiwiSaver to include insurance, given the Australian experience with that, I am against the idea.

There has already been a consultation on defining the terms of the unlock in the event of serious illness, but comments on that may be helpful. 

What else should we be considering? Glad to have your calls or emails. 

Another robo-adviser goes online

Another robo-adviser has gone online. How many robo-advisers will there be? The way we phrase that question may not be helping us assess the future. Rather than define the business as 'robo' why not ask, how many advice businesses will have some advice automation in the future? Put that way, I find it hard to argue that many won't have much advice automation.

Demography and financial services

Statistics New Zealand has published details of a further decline in the fertility rate - which is now solidly below replacement rate. It is worth thinking about the impact that this key demographic has, in conjunction with another more controversial one (net migration) on the provision of services such as health and superannuation.

On the estimates of only a few years ago, when net migration was negative, and immigration lower, the sum around the ageing population looked really bad. A few years of high net migration (which is mostly younger folk, but working age) has probably improved them somewhat - without having done the numbers my is that it kicks the can down the road a few years, allowing the coalition government the luxury of extending National's promise not to increase the age of eligibility for New Zealand Superanuation for the duration of this parliament, at least.

The future could see the trend stay low, or achieve a slow recovery as younger people who have deferred starting a family begin to start families in their early thirties. Either way, there are probably long-term impacts on retirement savings policy and health service provision to consider. But while net migration creates infrastructure headaches, it provides some valuable demographic breathing space to other problems.

Birth rate down to record low – Media release

19 February 2018

New Zealand’s total fertility rate in 2017 was down to 1.81 births per woman, its lowest recorded level, Stats NZ said today. This means that based on birth rates in 2017, New Zealand women would average 1.81 births over their lifetime.

Although the number of births increased slightly (59,610 live births were registered in 2017, up 180 from 2016), the fertility rate still decreased. This related to the increased population size rather than fewer babies being born.

“While the fertility rate is now the lowest ever seen, the total New Zealand population continues to grow, driven by near-record levels of migration in 2017,” population statistics senior manager Peter Dolan said.

The lower fertility rate may lead to reduced population growth if it stays below the ‘replacement level’ of approximately 2.1. The replacement level reflects the average number of babies that women would need to have over their lifetime to maintain the size of the population. The total fertility rate has only dropped below 1.90 births three times before, most recently to 1.87 in 2016.


New Zealand's total fertility rate has been relatively stable for the last four decades, ranging from 1.81 births per woman (in 2017) to 2.19 (in 2008).

“In contrast, fertility rates increased dramatically following the Great Depression and World War II, peaking at 4.31 births per woman in 1961,” Mr Dolan said. “New Zealand then experienced declining fertility over the following two decades.”

New Zealand’s fertility rate of 1.81 is similar to Australia’s rate of 1.79 (from the latest data in 2016).

The reduction in birth rates since 2008 has been mainly driven by trends among women aged 15–29 years, whose birth rates are now at record lows.

In 2017, the teenage fertility rate dropped to 15 births for every 1,000 women aged 15–19 years, just under half the 2008 rate of 33. The teenage fertility rate peaked at 69 for every 1,000 women in 1972.


Insurtech start-ups in the KiwiBank accelerator

While there are no life and health insurance start-ups in the accelerator there is plenty to be interested in. Two appear to have a general insurance flavour, the best of which is Stash, a outfit I have come across before and deserves to break out into broader market success. I also like the concepts for the blockchain identity development and the KiwiSaver advice service. Check out the list here.


NZ financial product comparison: Pocketwise

A new NZ financial product comparison site compares KiwiSaver schemes, mortgages, credit cards and loans. Pocketwise is the name of the new site, which launched last month. View the site at this link and an article about their growth plans by David Chaplin from Investment News NZ at this link. Congratulations to Binu Paul and Richard Dellabarca on the new venture. 

KiwiSaver nest-eggs lost for lack of insurance coverage

Rob Stock has a good article in explaining that hardship is often caused by disability - these are the essential facts:

"In the 12 months to the end of March, $81 million was paid out of KiwiSaver in cases of financial hardship, with 13,790 people drawing out an average of $5786 to help pay the bills."

Therefore KiwiSaver next-eggs are sometimes lost because they are used up early during a period of disability. This is an important issue which was sidelined from the design of KiwiSaver by politicians who legislated to keep basic levels of insurance out of the superannuation scheme. Well worth a read, and inclusion in client newsletters. 

Another financial planning issue was also identified - and it presages a large increase in people working until they are seventy years old: 

Two years' ago BNZ forecast that based on current payment trajectories, a third of people with mortgages wouldn't have paid them off by age 65.

...or they use KiwiSaver to pay of the balance.