Frequently asked questions
How does Lifetime pay you a regular income for life?
When you invest with Lifetime, your savings are invested in a balanced fund and your income is insured for life.
Your investment returns from the balanced fund are credited to your account. Fees, tax, and your fortnightly income payments are debited from your account.
In years where net investment returns are greater than your income payments, the difference is credited to your account and your income may rise proportionately.
In years where the net returns are less than your income payments, you’ll drawdown some capital to make up the difference. Your income will remain unchanged.
Over the course of a long retirement, it's possible your regular income withdrawals may drawdown your balance entirely. However, this doesn't mean you'll run out of income. Lifetime’s longevity insurance ensures you continue to get your regular income payments for life.
Your account balance (your initial investment plus net investment returns minus income payments) is available to you at any time and will be paid to your estate should you pass away.
How does Lifetime keep your savings secure?
Lifetime is designed to protect your capital and make it last as long as possible.
Lifetime is an insurance company licensed by the Reserve Bank of New Zealand. This is important as the Reserve Bank only licenses two types of financial organisations; insurance companies and banks.
As a licensed insurer, Lifetime is subject to strict governance and supervision. In order to offer a lifetime income guarantee, the Reserve Bank requires Lifetime to hold sufficient capital in order to meet its future obligations. Capital must be held separately in a statutory fund, which is regularly monitored by the Reserve Bank.
The Reserve Bank can require Lifetime to hold more capital if financial markets deteriorate and/or Lifetime’s customers have longer than expected lifespans.
The Government-owned Public Trust is the supervisor and custodian of the Lifetime Income Fund. When you invest with Lifetime, your savings are deposited into a Public Trust bank account. The Public Trust invests your savings with the investment managers of the balanced fund (Vanguard, ANZ, NZX, and Harbour Asset Management) in the assets stated in the Product Disclosure Statement.
The Public Trust supervises the administration of your capital at all times. Lifetime can only withdraw capital from your investment account in the event of; making Insured Income payments to you, paying the fees and tax on your investment, or if you instruct Lifetime to withdraw all or part of your investment.
As a fund manager, Lifetime is monitored by the Financial Markets Authority (FMA). Lifetime reports to the FMA every month on its financial performance and management of investors’ money.
What exactly do you mean by the term 'income'?
Your savings are invested in a balanced fund to generate a market return and you drawdown capital at a fixed rate to get a regular income for life.
Like all KiwiSaver funds and managed funds, the returns of the balanced fund will fluctuate year on year.
In years where the net returns of the fund are greater than your income, the difference is credited to your account.
In years where the net returns of the fund are less than your income, you will drawdown some capital to make up the difference.
Your income can therefore be made up of a combination of both returns and capital drawdown.
While your account balance may decline over time, your income will not. If, over the course of your retirement you draw down all your capital, Lifetime’s insurance then pays your regular income for life.
Can you top up or add to your investment?
Yes, you can make additional investments of at least $5,000 at any time before you start receiving your Regular Income. However, after you start receiving your Regular Income, additional investments are usually treated as separate investments which are subject to the same minimum investment amount of $25,000 as your initial investment. We can, however, accept smaller amounts at our discretion. This insured the income generated from each individual contribution, your Income Rate for an additional contribution will also be based on your age when you start your income from that additional contribution.
For example, if you invested $100,000 at age 65 and started income, your net Income Rate could be 4.00% p.a. If you made an additional contribution of $50,000 at age 67 and started income, your net Income Rate on the additional investment could be 4.20% p.a.
You can top up your account at any time here.
Can you withdraw your investment?
Yes, Lifetime gives you the freedom to withdraw your savings (in part or in full) at any time without penalty. If you pass away, your account balance will go to your estate.
If you make a lump sum withdrawal, your Protected Income Base and Regular Income will be reduced proportionately. You can make as many lump sum withdrawals as you like but you must keep a minimum account balance of $25,000. If your account balance falls below this threshold, it will trigger a full account withdrawal.
What happens to your investment if you pass away?
If you pass away, your account balance will be paid to your estate.
Can you invest with your partner?
Yes, you can choose to invest in Lifetime individually or together with your partner.
Investing individually insures your income for the rest of your life. Should you pass away, all remaining capital will go to your estate.
Investing with your partner insures and guarantees your income for both of your lives. This means should one of you pass away, the full Regular Income will be transferred to the surviving partner for the rest of their life. Should both of you pass away, your balance will be paid to your estate.
If you choose to make a joint investment, the age gap between you and your partner must be 10 years or less and your Income Rate is based on the age of the younger partner.
What are the fees?
There are two annual fees for investing with Lifetime.
1) Fund Management Fee - 1.09% per annum of your account balance.
The Fund Management Fee is to invest and manage your capital in the Lifetime Income Fund.
2) Income Guarantee Insurance Premium - 1.35% per annum of your Protected Income Base. If you choose to make a joint investment, the insurance premium is 1.75% per annum of your Protected Income Base.
The Income Guarantee Insurance Premium is to insure your income for the rest of your life, regardless of market performance or how long you live. If your original capital is depleted, the insurance continues to pay your Regular Income payments for life.
What tax do you pay?
Lifetime pays tax on your behalf at your normal PIR tax rate. This means your Regular Income is quoted as a net amount and paid to you after tax.
You can work out your personal PIR tax rate here.
Tax is only paid on your investment returns from the balanced fund. You do not pay tax on any capital drawdown.
Lifetime has a binding tax ruling from the IRD which confirms that Lifetime's income payments are tax excluded income in the hands of the Investor. This means your NZ Superannuation payments will not be impacted by the Regular Income you get from Lifetime.
Are Lifetime's income payments protected from inflation?
Lifetime can offer you an inflation-protected income for life option which increases each year in line with Consumer Price Index (CPI) inflation. This is done on a quote basis and the net Income Rate is typically around 25% lower than Lifetime's standard net income rates. For example, if a 65 year old was quoted a non-indexed rate of 4.00%, their indexed rate would be 3.00%
You therefore receive less income today but get increasingly more income in the future. However, in the current low inflation environment, we expect the average investor to be better off by choosing a non inflation-protected product.
Inflation has been steady and reasonably low for quite some time. According to the Reserve Bank of New Zealand, the average annual rate of inflation over the last 30 years has been 2.30% per annum. You can see this data here.
Most retirees tend to also spend more in early retirement than in later years, even taking into account greater spending on healthcare when they're older. You can read more on this here.
So what should you do?
Let's have a look at an example of someone who invests $100,000 at age 65 and compare the difference between choosing an indexed or non-indexed option.
*Inflation Protected product increases each year by an assumed long run CPI inflation rate of 2.30% per annum.
On the table, you can see that their income is initially lower with the indexed option but rises each year in line with inflation. At an assumed long run inflation rate of 2.30% per annum, it's expected to take 13 years before it exceeds the amount of income offered by the non-indexed option.
Lifetime is designed to help you top up NZ Super to help you meet your fortnightly living costs. NZ Super is indexed at 66% of the average wage (which tends to rise faster than CPI inflation) and will likely make up the a significant proportion of your retirement income. This means a large amount of your income is indexed (via NZ Super) anyway so the need to find inflation protection elsewhere is lessened.
Higher inflation tends to increase investment returns and interest rates. Although your income rate may be fixed, you will capture these higher returns in the form of increased returns from the balanced fund your money is invested in.
Your investment with Lifetime is always liquid, which simply means your initial investment plus net investment returns minus income payments received can be redeemed at any time.
If inflation were to rise in the future, you have the option to add to your investment to top up your regular payments. Your Income Rate would also be higher as you would likely be older when this occurs. Investing in stages like this can give you a partial inflation hedge. For example, if you invested a portion of your funds at 65 you could receive a net income rate of 4.00% p.a. If you invested another portion of your funds at age 70 you could receive a net income rate of 4.50% p.a.
If you would like an inflation-protected income for life quote, please feel free to contact us today at firstname.lastname@example.org
What is the minimum investment size?
You can invest anywhere from a minimum of $25,000 to a maximum of $1,500,000.
We can accept applications above or below these amounts at our discretion.
What is the minimum and maximum age you can invest and start income?
You can start your income payments anytime from age 60 onwards. The maximum investment age is 90.
Can you invest and start income later?
Yes, if you’d like to protect your future income you can invest and defer your income until later.
This enables you to grow your future income with investment returns over your deferral period. Because your income is insured, it will rise with positive returns but it cannot fall, even if there is a market downturn.
Read more about this here.
What will your investment returns be?
Your savings are invested into an internationally diversified balanced fund made up of shares, bonds, and cash. The fund has a gross average expected return of 5.00% per annum over the long term.
Please see the latest fund performance here.
How much of your savings should you invest with Lifetime?
Lifetime is designed to help you bridge the income gap between your fortnightly expenses and the money you get from Super, making sure your regular income needs are covered for life.
As a result, the amount you could invest with Lifetime depends on your personal living costs in retirement. This is subjective.
However, international research1 suggests the amount of money you could invest in a guaranteed income product like Lifetime is between 30% to 40% of your savings; but this will depend on your personal circumstances. For example, the suggested amount is closer to 40% if you're 65 or younger and closer to 30% if you're 75 or older.
Your surplus savings on top of this amount could be invested in other assets like shares, bonds, or bank deposits. For example, shares carry more risk but there is potential for higher returns that can help you grow your savings and potentially outpace inflation over your retirement. Bonds can generally give you a steady income and help you protect your savings from market volatility. Bank deposits are useful for money you need in the short-term, as well as for lump sum expenditures like holidays, new cars etc.
1. ‘Allocation to Deferred Variable Annuities’, Morningstar.com (last accessed 31 March 2018).
What’s a Protected Income Base?
The initial amount of money you invest is called your Protected Income Base (PIB). This is the base from which your Regular Income is calculated from. For example, if you were 67 and invested $100,000, your Protected Income Base would be $100,000. Your net Income Rate at age 67 could be 4.20% per annum of your Protected Income Base, giving you a net Regular income of $4,200 every year, for life.
Your PIB is reviewed and reset each year to the higher of your original investment, your highest PIB review, or your investment’s current market value. This locks in market gains on an annual basis and protects your Regular Income from negative returns. This means that while your account balance will fluctuate with the markets, your Protected Income Base will not. Because your income is calculated from your Protected Income Base, this means that your Regular Income can only rise or remain the same, it cannot fall.
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