OPINION: Right now, the New Zealand economy is like a ship trying to steer around submerged rocks and icebergs – and some of the danger is coming from us.
The truth is, there is a glaring hole in our legislative framework that exposes many of the 2.8 million of us who have opted into KiwiSaver to date and assume our savings will go to our next of kin upon our death. Unfortunately, this isn’t true.
It is naive at best, and negligent at worst, that as a nation we are continually failing to address the financial and wellbeing risk to families of potentially millions of KiwiSaver and life insurance policies that aren’t safely in the closed loop of a will.
Here’s what’s going on, and how we can fix it.
More people of retirement age than ever are either renting or still making mortgage payments.
This means that their families can’t afford for the assets they do have to be tied up in the courts for up to 18 months because there’s no valid will in place. Such a scenario could leave a surviving spouse unable to fund basic living costs.
If the goal of KiwiSaver was to give people a better standard of living in retirement than NZ Super alone, the risk that funds can be trapped in the court system runs entirely counter to this, and should be mitigated.
The families of Kiwis aged 25 to 44 have the most to lose from intestacy (dying without a will).
Only half of New Zealanders, and just 37 per cent of us in full-time employment, have a will.
If there’s no will, any personal assets left behind (such as KiwiSaver, or a group life insurance policy) are frozen, inaccessible to survivors, while a letter of administration is obtained and the estate can be settled. This process can, in some cases, take up to 18 months and cost upwards of $15,000.
So what’s the solution?
The primary reasons people don’t make a will are a) they think they don’t have enough assets to justify it; b) they think it will cost too much; and c) they think it’s too complicated.
Lots of people assume they need a lawyer. In fact, none of these things are true, because New Zealand legislation allows people to make, update and store valid wills online at a low cost. The ‘’not enough assets’’ misconception is just that – if you have a KiwiSaver account of $15,000+, or a group life insurance policy, you need a will to go with them.
The solution is so simple – every new KiwiSaver member should have a will included, to specify who would inherit the funds. The cost of the will could be funded by KiwiSaver providers from a choice of thoroughly vetted estate-planning providers.
At the same time, good work is being done to link life insurance provided through employee benefits programmes to estate planning – companies such as Aon deserve a shout-out for doing the right thing to boost the financial resilience and security of their staff and clients by attaching wills to group life insurance clients as employee benefits.
Finally, 13 years in, it’s time to start thinking about KiwiSaver as an investment portfolio rather than a retirement scheme – and with young people seizing on services like those of Hatch, playing, learning and achieving through smart investment is seen as interesting, relevant and accessible.
It’s well past time we closed the loop and added a final layer of smart financial planning – a will – to improve the financial resilience of KiwiSaver account holders.
Courtesy of Stuff, written by Angela Vale, 12 November 2020