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KiwiSaver provider Simplicity has signed a deal with variable annuity firm Lifetime Retirement Income, to provide a new KiwiSaver fund that offers retirees an income for life.
It is launching the Simplicity Guaranteed Income Fund, which members can switch to as they approach retirement.
Then they receive 5% of their final KiwiSaver balance for life, from 65. Lifetime’s insurance product covers the longevity risk.
As with Lifetime’s other products, investors who start taking drawdowns later in life receive a higher percentage of their balances as annual income. When investments do not generate enough of a return, investors' capital will be used to meet payments.
The fund will be invested with a balanced asset allocation.
Lifetime founder Ralph Stewart said it had always been intended that there would ?p=332 be wholesale and retail opportunities. The deal with Simplicity meant it was the only KiwiSaver provider who could offer the option, he said.
Simplicity’s is a simpler product than the standard Lifetime income product, with different capital protection mechanisms. It can only be used by an individual ?p=332, whereas those who invest with Lifetime direct can take out an investment as a couple.
Simplicity founder Sam Stubbs said there was a lack of investment options for retirees. ?p=332 they were limited to low-interest rate term deposits [?p=332] or too-risky investments that offered higher returns.
“The payments are designed to ‘top up’ NZ Super, so retirees can meet their regular living expenses. ”
Simplicity will charge $30 a year for the fund, plus 1. 6% a year, which is lower than Lifetime’s standard fee. Stubbs said it should be expected to drop as the fund achieved economies of scale.
The fund is invested in a balanced portfolio of 3000 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.
Stubbs said a law change was needed to allow those over 65 to move to new KiwiSaver schemes, so that those who were already retired could take advantage of the new fund.