New Zealand’s projected $1.6 trillion inheritance: Low charitable giving a concern

A substantial intergenerational wealth transfer, projected to reach NZ$1.6 trillion by 2050, is anticipated in New Zealand. A new report from financial advisory firm JB Were highlights a significant disparity between the nation’s considerable private wealth and its comparatively low rate of charitable giving, particularly through bequests. The report details a country on the verge of a major inheritance boom, driven by an aging baby boomer generation and sustained property value increases, yet it significantly trails peer nations in directing that wealth to philanthropic causes.

While New Zealand consistently ranks highly among the world’s wealthiest nations on a per-capita basis, often appearing in the top tier for both average and median household wealth, this overall prosperity masks a growing generational divide. The JB Were report notes a widening wealth gap, particularly noticeable for younger New Zealanders facing high housing costs, slower wage growth relative to asset inflation, and rising living expenses. This places New Zealand in a distinct global position: while relative wealth disparity is comparatively low, intragenerational disparity is increasing.

“New Zealand’s global wealth ranking is strong,” stated John McCloud, lead author of the JB Were report. “We consistently perform well compared to many larger economies in terms of average and, importantly, median wealth, which suggests a more even distribution than, for example, the United States.”

However, this global comparison provides limited context for Millennials and Gen Z, many of whom face challenges in entering the housing market and managing living costs. This situation raises questions about the eventual distribution and societal impact of the projected wealth transfer. A large proportion of older New Zealanders’ wealth is held in residential property.

While some suggest that financial pressures might lead to earlier wealth transfers from older generations to assist younger relatives, McCloud believes this effect will be relatively small. He cites New Zealand’s declining birth rates and the trend of later parenthood, noting that inheritors are often in their 60s and may already be financially established, reducing the urgency for financial aid.

“The ‘Bank of Mum and Dad’ is a factor in New Zealand,” McCloud acknowledged, referring to parental financial assistance. “However, asset values, primarily property, have increased more rapidly than income growth, meaning that assistance, while helpful, often represents a smaller proportion of the overall wealth accumulated by older generations.” The median house price in Auckland exceeding 10 times the median household income exemplifies this.

The report’s key finding centers on New Zealand’s low rate of charitable bequests. Only 1.3% of total inheritances in New Zealand are currently directed to charitable organizations. This is significantly lower than bequest rates in countries like the US and the UK, where charitable giving from estates is often three to five times higher. This difference represents a considerable difference in potential funding.

McCloud partly attributes this to the absence of estate taxes in New Zealand, unlike the US and UK, where tax incentives can encourage philanthropic giving. However, he emphasizes a more fundamental cultural difference: a general reluctance to discuss death and legacy planning.

“Discussions about charitable bequests, or even death itself, are infrequent,” McCloud stated. “It’s not a common topic of conversation, in contrast to some other Western nations. This lack of open discussion is a notable factor.”

This cultural aspect, combined with the perceived complexity of estate planning, often results in charitable giving being a secondary consideration in the will-writing process. JB Were, recognizing this, has established a philanthropic services division to promote a greater understanding of legacy giving.

The report argues that even a modest increase in New Zealand’s charitable bequest rate could have a substantial impact. Currently, approximately NZ$320 million is directed to charities annually through bequests. This is projected to increase to NZ$1 billion per year within two decades due to demographic changes and asset appreciation. However, a one or two percentage point increase in the bequest rate could potentially triple that figure.

“An increase from 1.3% to 2% or 3% represents a significant increase in funding for New Zealand’s charitable sector,” McCloud explained. This would be a considerable change for a sector where total annual philanthropic income is currently estimated around NZ$4 billion. This potential increase is particularly relevant because New Zealand charities rely heavily on individual donations.

The JB Were report positions the issue not solely as a matter of increasing charitable funding, but as a broader societal consideration. By encouraging open conversations about legacy planning, promoting the inclusion of charitable bequests in wills, and helping families consider their values and community connections, New Zealand can potentially increase philanthropic contributions. The report concludes that this is important for ensuring that the coming transfer of inherited wealth benefits not only individual families but also contributes to the wider community for future generations. The report suggests a shift in thinking: from viewing inheritance primarily as a private transfer to considering its potential for broader societal contribution.

Key facts and figures presented in the JBWere Bequest Report:

I. New Zealand Population & Demographics

• Population Growth Slowing: NZ’s population growth is slowing faster than many other countries.
• Aging Population: The population is aging significantly, with a dramatic increase in the 85+ age group.
• Peak Population: NZ’s population is projected to peak around 2080.
• Rising Deaths: Annual deaths are projected to double in the next 50 years (from ~37,000 to over 66,000). From 27,000 in 2005.
• Female Life Expectancy: Females outlive males (currently by 3.6 years), and this gap is widening.
• Birth Rate: The birth rate has fallen below 3.0 since 1973 and has been less than 2.0 since 2014.
• UN Population Peak Prediction: The UN expects the global population to peak in 2086.
• Annual Population change:
  • 2022: Births (58,890), Deaths (38,570), Net Migration (24,900), Change (45,220)
  • 2043: Births (61,500), Deaths (53,500), Net Migration (25,000), Change (33,000)
  • 2073: Births (60,800), Deaths (66,300), Net Migration (25,000), Change (19,500)

II. New Zealand Wealth & Inheritance

• High Global Wealth Ranking: NZ ranks #7 in average wealth and #5 in median wealth globally (2023).
• Asset Growth: Real asset growth of 3.5% is used for future projections. Past 25 years: housing (5.4% p.a.), financial assets (3.8% p.a.).
• Estimated Annual Inheritances (2024): $27 billion.
• Projected Annual Inheritances (2066): Over $200 billion.
• Projected 25 Year Total: A total of $1.6 Trillion is expected to transfer over the
  next 25 years (by 2050)
• Inheritance Recipients: Primarily partners (if in a couple) or the next generation (if single).
  • Single with children: next generation
  • Couple with children: Remaining partner
  • Single without children: Other family and friends.
  • Couple without children: Remaining partner.
• Average Inheritance Age: Peaks around 60 years of age.
• Household Wealth Distribution: The report includes a table showing the distribution of household net assets and individual pretax income in NZ. (Top 0.02% have above $75,000,000)
• Average and Total individual wealth by age in 2021: peaks in the 75+ age group.

III. Charitable Bequests in New Zealand

• Current Charitable Bequest Proportion: Approximately 1.3% of total inheritances.
• Estimated 2024 Charitable Bequests: $320 million.
• UK Comparison: NZ lags the UK in convincing people to include a charity in their will.
• Charitable Bequest Growth Potential: Potential to reach almost $2.5 billion annually within 20 years (if 3% of estates, with higher participation).
• Concentration of Value: Only 1% of bequests to charity are over $1 million, but they comprise 50% of the total value.
• Bequestors not always known:
  • 21% confirmed
  • 40% known
  • 39% Unknown
• Bequests remain under researched
• Return on investment: Highest return on investment (over 25 times).
• Restrictions: Usually unrestricted (only 9% restricted for a particular use).
• Largest Recipient: 30% of final estates without children leave a bequest.
• Charitable bequests by cause 2010-2015: Health is the biggest recipient.
• Key Statistics Comparison (NZ, USA, UK, Australia): The report provides a detailed comparison of population, wealth, annual deaths, inheritance values, will prevalence, and charitable bequest statistics across these countries. Some key figures from this comparison:
  • Proportion of wills including a charity
    • NZ: 6%
    • USA: 10.0%
    • UK: 13.7%
    • AUS: 6.5%
  • Proportion of inheritance left to charity
    • NZ: 1.3%
    • USA: 4.4%
    • UK: 3.7%
    • AUS: 1.0%
  • Value of Annual Charitable Bequests (Billions)
    • NZ: $0.32
    • USA: $45.6
    • UK: 4.0 pounds
    • Australia: $1.3

IV. Charitable Bequest Characteristics (International Data)

• Types of bequests:
  • Residuary (Proportion of estate): 84% of Value, 38% by number
  • Pecuniary (Specific amount): 8% of value, 55% by number
  • Other (Specific Items) 8% of Value, 7% by number.
• Concentration of Gifts:
  • NZ: 1% of bequests over NZ$1m = 52% of value
  • UK: 9% of bequests over £100,000 = 59% of value.
  • USA: 1.1% of large bequests = 43% of value.
  • AUS: 5% of estates over A 2m=562m = 56% of value. 85% below AU2m=56 1M.

V. Giving habits.

• 60% of people give financially each year.
• Only 6% include a charitable gift in their will.
• Almost half of New Zealanders don’t have a will.
• 5% die intestate

VI. Drivers and Suggestions
* No estate taxes in New Zealand or Australia.
* Rise in “living bequests.”