Each year Kaspanz compiles its Top 15 Retirement Income issue.
Top 15 Retirement Income Issues of 2021
Economic security for women
Review and prompt action to follow re what some call “Sexually transmitted poverty”. Achieving economic security for women in retirement is a bleak outlook for women. Change required. This issue is equal to climate change issues, countries that fail women, fail, and NZ does not treat women fairly in the retirement income sphere.
Failure to launch: Families love em and leave them. Don’t use retirement savings to assist your children :
The trend of parent’s supporting adult children with financial assistance continues unabated. Current trends are parents subsidizing children in various ways,
Including providing most of the significant child care for under 5’s.
Housing loans provision and early inheritance gifting are common.
Parents homes are becoming a place of return for children 20-45yrs following divorce or early work experience.
They are also the nesting place, with failure to launch, from the parental home common. The costs of this provisioning are carried principally by parents. All this is severely affecting retirement savings!
Adjustment requirement for low interest rates on savings and bonus bonds demise
Bonus bonds have gone, and savings on Term deposits are very low. Savers have become the new Lepers, the 2021 Gold rush has been property, property, property, over stimulated over the last decade by deliberate Government policy. New ways of thinking re investment savings are required, including managed funds, online investment platforms , Kiwi Saver etc. Timely to revisit the Fair Tax for Savers, proposed by Peter Neilson.
Te ara ahunga ora Retirement Commission.
After some poor leadership decisions, from previous years regime, and questionable re- branding attempts , the Retirement Commissioner Jane Wrightson is giving it her best revival shot. Engagement in research both contracted and internal is important, and the commission should also be the source of authoritative analysis on Retirement Income issues. A hub of research including contracted work on topics is required, and a wide-ranging contact network throughout Australia, United Kingdom, Scandinavian countries etc would assist collaborative outcomes and knowledge sharing. A library resource on all retirement income matters, and source for international research is required.
The focus on Financial Literacy while having merit in the intention, requires too much implementation resource to have any meaningful effect, and a review of effectiveness is suggested. Switching funding into PHD research projects and supporting academic research facilities like the Auckland Retirement Policy and Research Centre, or establish a NZ Retirement Income and Research Centre facility.
Under MMP, the Commission should also have a link and educational role with political parties Research teams, and a direct link to Treasury. What level of co-ordination and mentoring is occurring within Government circles on improving knowledge of retirement income issues?
Management fees on Kiwi saver and managed funds high and have been for decades. They are trending down, better late than never!
Rule of thumb. Less than 0.50% per annum for passive/index funds, no more than 1.0%per annum for actively managed funds.
New Zealand superannuation is the safety net for all retirement income planning.
The model is sound, efficient, effective, reasonable costs, excellent for women, and keeping the elderly from poverty. The costs of NZ Super over time are often exaggerated. The simplicity of the current model of NZ Super, and its universality is acknowledged as a world leader. Only minor adjustments are required, as and when they surface. The evidence clearly shows New Zealand has got it right. The Retirement Commissioners 3 yearly review 2019
“New Zealand doesn’t need to increase the age of eligibility for New Zealand Superannuation and can afford to keep it at 65 for at least the next 30 years”.
Seniors need help in making better use of the wealth tied up in their homes, to support their living options.
Conversations on retirement village issues including what is the best age to utilize this option , reverse mortgage options, changing approaches to inheritance, need visibility and increased discussion .A return to smaller home size, and the attractions of apartments and townhouse style units needs facilitation. Council and planning environment need a major shakeup, the pending Resource Management changes are a useful start, but the culture, expectations and infrastructure regimes inside Councils, have been a crippling and negative consequence on all housing options for the last 2 decades. The Labour Government continues the approach of National, tax weight including Housing policy changes affect the middle classes, the wealthy continue to be advantaged.
Longevity and aging of the population are a demographic reality.
The topic requires careful analysis and cautious assumptions. The last few years of life (quality of life) may be impaired health, with a probability of a critical illness (e.g., cancer, stroke, Diabetes, heart, prostrate, Alzheimer’s) affecting many, and the ability to work limited. Different implications for different groups apply when longevity is discussed. Longevity for some groups is lower than others! Maori needs probably require different policy tools.
Be cautious of those predicting improved health stats for the population, just look at the obesity of many New Zealanders in their younger years . Worldwide obesity has nearly tripled since 1975. Both the Australian and United Kingdom Stats 2020 have shown for the first time in years, a reversal in long term longevity projections.
Very little commentator discussion on Health Care issues, the delivery model and alternative approaches. Chronic illness across all age groups, and the end-of-life costs (last six months all age groups 0-90) dominate .
Increasing health costs due to technology and supplier fees and products, and increasing the take up of private insurance, requires attention and public debate.
The upward trend of New Zealanders over 65 in paid work continues, due to the fact most cannot afford to retire.
However, it’s the educated group that benefit mostly from this trend and the hurdles to find work post 60 years, for the majority are considerable. Those most likely to need work later in life are the least likely to find it. There is little reason to be optimistic about this; discrimination toward seniors is rampant and deep seated. For the low economic group physical ailments provide little chance of paid work.
Consumers want consistency in changes to retirement income issue policies, and long lead in time to any proposed changes.
The Parliamentary parties who accept this will harness good will and ballot box support. Be very wary of Act party retirement policies, built on misinformation and cheesy one liners.
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Kiwi-Saver supports NZ Super, and is a sound savings model. Now 13 years in existence, its timely for a review. Good to see the 2021 default options in place, and those fees coming down.
Passive and index funds, generally produce similar returns to active funds. When lower fees for passive funds are factored in, schemes following this approach should be a favoured option. Predicting in advance the performance of active managers is impossible, and with their fee structure normally higher and effecting returns over time, the client beware principal applies.
Buying an annuity or similar income product upon retirement or following receipt of post Kiwi-Saver lump sums and drawing an income from it, makes sense.
However low interest rates and worldwide market changes to savings, requires a rethink . Opportunity here for new thinking: Government could offer something here, e.g., top up purchase options to supplement New Zealand Superannuation, a Tasman co-operative approach with our Aussie friends would be creative.
A retirement income symposium is required. The last one was the Task Force on Private Provision for Retirement (the first “Todd Task Force”), August 1992. A retirement income task force similar to the Tax Working Group 2018. This would assist all political parties to make sound public policy choices regarding retirement issues and provide a benchmark of information.
Deposit protection scheme.
New Zealand is one of the few countries that neither insures nor guarantees bank deposits, instead adopting the moral hazard principle, “make wise choices”. This is poor policy and has needed change for decades. Current government has signalled change; but this requires urgency, not years down the track. Put in place now!
Alec Waugh: Editor