Simplicity fund aims to top up NZ Super
KiwiSaver provider Simplicity is launching a new fund designed to help people make their KiwiSaver savings last through retirement.
It is working with variable annuity provider Lifetime Retirement Income to launch the fund, which guarantees to pay members an after-tax income of at least 5 per cent of their savings, per year, for the rest of their lives.
Like Lifetime’s own product, which anyone can invest in, the Simplicity KiwiSaver option invests clients money, and uses the returns to provide the income.
But if the returns are not sufficient, money is taken from the invested balance to top payments up to 5 per cent. An investor could expect to get $192.31 a fortnight for life for every $100,000 invested if they started drawing it down at 65.
The fund will have the same asset allocation as Simplicity’s balanced KiwiSaver fund. Members could transfer in as they approached retirement.
An insurance policy kicks in if the money runs out while the investor is still alive. If there is money left in the fund when they die, it goes to their estate.
The money is not locked in and can be withdrawn.
Simplicity managing director Sam Stubbs said it was sometimes hard for retirees to find the right investments.
‘‘Too often retirees have to choose between very low term-deposit rates with break fees, or overly risky investments,’’ he said.
Often they were choosing between a ‘‘three-and-a-bit’’ per cent term deposit or a property syndicate delivering more than 9 per cent, he said.
Stubbs said the payments from the fund were designed to supplement New Zealand Superannuation and would be paid on the same day.
Those who start receiving payments later in life can get a higher income.
The payment level increases incrementally – someone who started drawing down at 90 would be guaranteed 7.5 per cent for life.
Simplicity will charge $30 a year for the fund, plus 1.6 per cent per annum. That is less than if the investor took their money out of another KiwiSaver fund and invested it with Lifetime independently. The minimum balance is $50,000.
Investors who want to take up the option would need to move their KiwiSaver accounts to the Simplicity Guaranteed Income Fund before they turned 65.
At the moment, it is not possible for investors to join a KiwiSaver fund once they have reached that age.
Stubbs said the fees should reduce with scale and the new fund made KiwiSaver a ‘‘cradle to the grave’’ savings and income product.
Ralph Stewart, the founder of Lifetime Retirement Income, said his product had been launched because of how successful KiwiSaver had been. A wholesale option had always been expected to become part of the mix.