In 2018 I attended the Christchurch session of Lifetime Retirement Income’s “Live longer, better” retirement event. It was marketed as providing attendees with “practical advice on managing your money in retirement”.
Below are some of my thoughts, which I provide without fear or favour.
As an overarching comment, this came across as an advertisement for Lifetime’s Retirement Income Fund product. I’m not sure how apparent this was to other people, but I hope it wasn’t a surprise since it was a free event hosted by Lifetime. In a sense, the session seemed to be more about eliciting fear, uncertainty, and doubt in attendees, before providing a solution in the form of a product from Lifetime. There wasn’t a huge amount of “practical advice on managing your money in retirement”.
Having Diana Crossan, former Retirement Commissioner, provided some mana to the presentation, but apart from providing a little bit of historical context there wasn’t much substance to her talk. Her most interesting comment was that we mustn’t “let any politican touch NZ Super!”.
Former ANZ Chief Economist Cameron Bagrie spoke for quite a while. He told a compelling story, confidently told, with lots of figures and charts. One of his first comments was to contradict Crossan about NZ Super, saying that it’s not sustainable as it currently stands.
During Bagrie’s presentation I was reminded of Nassim Taleb’s principle that “it’s easier to macrobull$#it than to microbull$#it”. I was also reminded of Philip Tetlock’s work about experts and forecasting, and Tetlock’s findings that people who are confident in their predictions and make for good media prognosticators tend to be less accurate at making predictions than people who are more circumspect.
For example, Bagrie was confident that “inflation is yesterday’s story”, and in the Q&A session he said he doesn’t think the New Zealand property market will crash, even if it might soften.
In both cases, Bagrie might have qualified his statements but they didn’t come across as qualified. They were presented emphatically. Far better, to my mind, to think and communicate in terms of probabilities rather than relative certainties. (Which is why, unlike Bagrie, I’ll never be a talking head on TV.)
(More reading: Future babble: why expert predictions fail and why we believe them anyway.)
Despite this, Bagrie made some good points. For example, his observation that central banks have been leveraging access to credit via prudential policy rather than price of credit was well put. I agree with his general assessment of property markets – that NZ property prices are very high as multiples of household income, especially compared to international and historical standards.
In terms of giving people “practical advice on managing your money in retirement”, Bagrie’s presentation added very little. Except, perhaps, for instilling some fear, uncertainty, and doubt and softening attendees up for Ralph Stewart’s presentation at the end.
Liz Koh spoke third and gave a similar presentation to the one she gave during a previous “Counting down to your retirement” roadshow hosted by Lifetime. (Sam Stubbs from Simplicity was also a presenter). She’s improved the presentation, and it was a better fit with the rest of the content in this session than in the previous roadshow.
Koh’s presentation was the most useful by far, and I liked what she had to say, with a few caveats:
- This isn’t a dig at Liz Koh, but a more general observation. I understand that Authorised Financial Advisers (AFAs) have disclosure requirements. But as a group we’re really clumsy about how we make these disclosures. Maybe it’s because we’re trying to trojan horse these disclosures into marketing opportunities. I don’t know. But as a group, we can get better.
- There was too much focus on uncertainty and fear for my liking. I’m the first person to talk about the uncertainties involved with retirement. But it’s one thing to point out uncertainties in a way that create a sense of fear, uncertainty, and doubt, and it’s another to refer to these uncertainties in a way that engages people’s inherent self-efficacy. In this respect, Koh’s presentation probably hit the mark in terms of her mandate (in the context of the event), but it didn’t sit well with me.
Koh gave a good primer on bucket strategies for dealing with retirement expenditure/investing. I’m not sure I like the names she gives them (“live it up”, “fix it up”, “winding it down”), but that’s an aesthetic thing.
She also made an excellent point for people who are looking to downsize their homes in order to free up capital for retirement: going from a $1 million dollar house to a $500,000 house doesn’t feel that good. You need to manage your expectations about this sort of life transition.
All up, Koh’s presentation gave me confidence that she’s probably providing her clients with very solid financial planning advice.
Ralph Stewart gave the final presentation and it was basically a sales spiel for the Lifetime Retirement Income product. We heard about all of the benefits of the product, and how it resolves the fears, uncertainties, and doubts introduced by the other speakers.
As a counterbalance, I’d like to add some of my own thoughts about the product.
Don’t get me wrong: as I’ve said before, the Lifetime Retirement Income product, as well as Simplicity’s Guaranteed Income Fund, are good products.
But Porsche creates good cars, too. Another similarity between Porsche and Lifetime is that their products are expensive.
With the Lifetime product, you’re paying 2.35% per annum in fees. That’s an enormous price to pay for the “certainty” it offers. If you’re paying that much in fees, you need an income guarantee because your balance will deplete more quickly than you’d think compared to investing in a similar fashion elsewhere.
I put “certainty” in brackets, because these products can’t provide people will full certainty. Unless you’re preapred to receive a much smaller payment each fortnight (based on a return of 3.5% per annum rather than 5%) the income is not inflation-adjusted, meaning that the real, inflation-adjusted income you receive over time, is subject to the whims of inflation. Cameron Bagrie thinks inflation is yesterday’s story, and that may be the case. But it might not.
The insurance supporting the product is only as strong as the reserves of the insurer, Lifetime Income Limited (LIL). Sure, LIL needs to satsify capital adequacy requirements set by the Reserve Bank, but no one – not even a central bank or an impressive board of directors – is all seeing about the future. The fund doesn’t have a Government guarantee; if markets do really poorly, it might not be able to pay income to people when it’s most needed. A.M. Best Company rates Lifetime Income Limited as having a Financial Strength Rating of B-, which is “fair”. I’d personally like a higher rating than this.
I can probably stomach the 1.35% insurance premium baked into the product. What I can’t stomach with the Lifetime product is the additional 1% per annum for an index-based investment strategy. That’s really high. For people with some funds in KiwiSaver, I’m not aware of any reason to go with the Lifetime product compared to Simplicity’s product which charges substantially lower fees for this aspect of the service, using the same insurer as the Lifetime product.
There’s a time and a place for Lifetime’s Retirement Income product. And to be fair, Stewart didn’t paint the product as a panacea. But if I hadn’t had a healthy degree of skepticism walking into this session, I’d have walked away a lot more positive about the product than I think it warrants.
I’ll conclude my comments on the roadshow by congratulating Lifetime. I think Lifetime nailed what it wanted to achieve. Unfortunately, I don’t think its aim was providing attendees with “practical advice on managing your money in retirement”.