Police News May - New Zealand Police Association

New Zealand Police AssociationMay 2004Performanceoutshines imagesBy Joe FranklinAn old friend and I were recently sharinga beer in a Kapiti Coast bar whenhe spoke in glowing terms of policeworking in Auckland. He is a JP andI was impressed enough with whathe said that I asked him to go on therecord for Police News.Our discussion centred on thenegative publicity following historicrape allegations and alleged shoddyinvestigations involving senior staffand former Rotorua members. Thatmorning’s Dominion Post cartoon,depicted an embarrassed copstumbling across group sex in a policecar involving a woman, NCOs andcommissioned officers. It was rightalongside an editorial advocating anindependent inquiry into the rapeallegations. We had also both heardthe stories of police in the field beingabused about the allegations, as theywent about their business.Then the JP, who does not wish to benamed, is called out by police in theMt Wellington/Glenn Innes areas as a‘nominated person’ under the CYPFA,to be present when people under-17 areinterviewed, either orally or on videotape.Skills and dedicationHe said he saw almost without exception,skills and dedication going far beyondthese most recent images. “Police, menand women, mostly young, show greatsensitivity and dedication in dealing withyoung people who clearly need assistanceand guidance if they are to be turned froma life of crime,” he said.“I see police going well beyond what Iwould have reasonably expected whenI first came into the JP’s job. They arethere, all hours of the night and day,always firm but also professional. I willgo as far as to say I feel both humbledand buoyed that such young and skilfulpeople are the front-end administratorsand practitioners and are doing such agrand job,” he said.(In the past the JP served in the Middle-East with the RAF, held commissionsin the Hong Kong Police and theRNZAF and was a senior NCO in theNew Zealand Territorial Army. Thisexperience, along with 30 years insecondary teaching, makes him wellable to judge excellence in the deliveryof services.)Living with rising interest ratesIt’s well-known that New Zealand hasone of the highest rates of owneroccupationof houses in the worldand with it a pronounced leaningto home ownership for investmentpurposes.That explains why media coverage ofmovements in interest rates inevitablyfocuses on the impact onborrowers. When rates fall,it’s good news. When they rise,as they have lately, it’s not.In reality, there are plenty of peoplefor whom the standard formuladoesn’t work. As well asborrowers there are lenders,depositors,investors invarious assets andpeople who simplyneed liquidity at times. Each is affecteddifferently when interest rates move.An upward trend?We have seen what might be the startof an upward trend in interest ratesover the past few months, with theReserve Bank increasing its OfficialCash Rate 0.25 percent in late January.The consensus has been that rates willrise further, but perhaps in a narrowerrange than over the past couple ofdecades.So what is practical advice for thetimes?If you are a borrower, higher interestrates raise the cost of debt andtherefore the total you pay in dollars toservice it. If you can’t, or don’t want tocarry a heavier load, there are at leasttwo ways of lightening it:• Reduce the amount you owe...byusing any uncommitted cash, orperhaps the proceeds from sellingan asset.• Restructure the debt to a longertimeframe, reducing the principalcomponent of your repayments.Think carefully before adopting thelatter strategy, as lengthening yourdebt profile may or may not be in yourlong-term financial interests.Factors to considerIf you are a depositor, a rise in interestrates is to your benefit, but there aretwo things to take into account:• If the rise is linked to a movementupwards in inflation the benefit islargely illusionary. Your real returnis calculated after inflation, i.e.if the interest rate is six percentand inflation is two percent, thecalculation might be 6 - 2 (incometax) - 2 (inflation) = 2 percent.• If you are convinced that interestrates could rise further than theyalready have, it might be sensible tostay liquid, i.e. keep with short-termdeposits so you can lock in higherrates later.For members ofthe GovernmentSuperannuation Fund(GSF), any movementin interestrates will notdirectly affectyour entitlement.However, if you are a member of thePolice Superannuation Scheme (PSS),any significant movement in interestrates could influence returns earned bythe scheme.As a generalisation, company sharestend to fall in value when interest ratesrise significantly. If you think that’s likelyyou would take it into account in anybuying or selling decisions. The same istrue of property. Given that investmentproperty is generally highly debtfunded,rising interest rates increasethe cost of ownership, lowering yourreturn. This will generally lead to a fallin prices, as new investors will pay alower price to achieve the same levelof return.As you can see from the above, risinginterest rates can affect the value of awide range of assets. It is importantto note that, like all other assets,interest rates move in cycles - so ifyou are a long-term investor youshould not become overly concernedabout short-term movements. If youhave debt, it is important that youhave the ability to cope with increasesin interest rates without being forcedto sell assets. Inevitably, the issuetends to arise when prices are at theirlowest.The golden rule with any responseto interest rate movement - as withany other investment decision - is tothink before you leap. To speak with aSpicers financial planner today pleasecall the Police Financial PlanningEnquiry Line on 0800 ON BEAT(0800 66 2328).75