Top 15 Retirement Income Issues of 2020
- ADJUSTMENT REQUIREMENT FOR LOW INTEREST RATES ON SAVINGS AND BONUS BONDS DEMISE
Bonus bonds have gone, and savings on Term deposits are now negligible. 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, and review the role of the Reserve Bank.
- COMMISSION FOR FINANCIAL CAPABILITY SHOULD FOCUS ON RETIREMENT INCOME ISSUES.
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 etc would assist collaborative outcomes and knowledge sharing. A library resource on all retirement income matters, including OECD comparisons academic research and what’s happening internationally is required. The focus on Financial Literacy while having merit in the intention, requires too much implementation resource to have any meaningful effect, and has left the Commission a limp reflection of what it could have been. Switch 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. The twice re-branding of the Commission name has been a failure marginalizing the Commission into a near meaningless entity; New Zealanders have no awareness of the Commission name or role.
- MANAGEMENT FEES’ ON KIWI SAVER AND MANAGED FUNDS ARE TOO HIGH AND HAVE BEEN FOR YEARS. GET THEM DOWN.
Rule of thumb. Less than 0.50% pa for passive/index funds, no more than 1.0%pa 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, a 2019 report by the Interim Retirement Commissioner says”.
- HEALTH TOPICS REQUIRE BOTH TRANSPARENCY AND DISCUSSION.
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 costs and there are too many District Health Boards. Increasing health costs due to technology and supplier fees and products, and increasing the take up of private insurance, requires attention and public debate.
- 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.
- 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 and 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 first Parliamentary party to accept this will harness good will and ballot box support.
- KIWI-SAVER SUPPORTS NZ SUPER, AND IS A SOUND SAVINGS MODEL.
Now 13 years in existence, its timely for a review. Issues like whether the default schemes should be based on an age-related asset basis immediately come to mind, but there is a sprinkling of issues which require attention. Government providing a a suitable post Kiwi Saver income product purchase option, also requires work.
- 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.
Lifetime Retirement Income is the principal provider in NZ, with a sound business model, but competition is required. Government could offer something here, e.g. top up purchase options to supplement New Zealand Superannuation
- 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, would assist all political parties to make sound public policy choices regarding retirement issues NATIONAL HOUSING SYMPOSIUM IS REQUIRED. Property assets continue to have an advantage over other investment alternatives. Post Covid 19 provides the opportunity to revisit the work of the Cullen Tax working party, but also a housing symposium with succinct terms of reference could assist a new way forward.
- 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 needs to be changed. Government has signalled change; but this requires urgency.
- FAILURE TO LAUNCH.
The trend of parent’s supporting adult children with financial assistance continues unabated, yet this is severely affecting retirement year’s savings. 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. Equally they are also the nesting place, with “parental co-habitation: now the most common living arrangement for adults aged 18-34. The costs of this provisioning are carried principally by parents.
15 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 increasing discussion. A return to smaller home size, and the attractions of apartments and townhouse style units needs facilitation, all housing options outside of the large home on its own piece of land, have been restricted under the Resource Management Act and Council district and regional plans and the Building Act has compounded problems.