Lack of retiree options driving up property prices: expert

No annuities and a lack of other options appear to be pushing NZ retirees into property investment. Photo / NZ Herald

A lack of investment options for retirees is contributing to Auckland's property price boom, according to a visiting expert.

David Harris, managing director of UK firm TOR Financial Consulting, said Kiwis were using rental property as a way of generating income in retirement because they were not able to buy an annuity - an investment product which can provide a regular income in retirement.

"People are trying to create synthetic annuities."

Harris said there were no annuities sold in New Zealand last year and just three policies were sold the year before.

"Why is New Zealand the only OECD country where no annuities were sold last year?"

"You can't get an annuity. The market is broken."

Harris said he had asked people why the market did not exist in New Zealand and some said New Zealand was too small to sustain the product while others believed it was because the government provided universal payments through New Zealand Superannuation and it was not needed.

But Harris said NZ Super was not enough for people to live comfortably on and there were political risks around it being maintained in its current form.

Harris said New Zealanders needed to become aware of the risks around running out of money in retirement due to living longer and the country should have a debate on how people were going to fund their retirement into old age and pay for health care costs.

"There needs to be a dialogue around what do New Zealanders want."

A survey released by the Commission for Financial Capability last week found a regular income in retirement is the top priority for pre-retirees.

People are trying to create synthetic annuities.

David Harris

But just 29 per cent said they would be very interested or extremely interested in buying an investment product that would provide a guaranteed weekly or fortnightly income in retirement.

Those most interested were people who did not have a financial plan or enough savings and investments to live the sort of lifestyle they wanted to in retirement.

But they may not be the ones who can afford to buy into the investment product.

Annuities can typically require around $100,000 to be handed over to produce enough of an income.

Harris said hundreds of thousands of people were in KiwiSaver but many were using it to draw down money to buy a house.

"And they are having to buy inflated houses driven up by people using rental property as a retirement plan.

"It's a catch 22 situation."

Annuities are a hot political issue in Britain where the government scrapped compulsory annuities in May.

Harris said around 60,000 people had taken their money out of their pension pots rather than buying an annuity and sales of the products had collapsed.

"Yes people are loving it. But what are people doing? They are buying cruises and rental properties."

"A lot of people are not seeking advice and are just getting access to their money."

In Australia the annuity market was small but growing.

He said people there were also trying to create a synthetic version by self-managing their super scheme - a system which allows them to use their superannuation savings to invest in whatever they would like to.

"It comes back to control and choice. It has been okay with a bull market. But in the last week they have been getting creamed," he said.