2017: The Dominant retirement income issues for New Zealand

At the end of each calendar year,  we list what we see as the  dominant New Zealand  retirement income issues.

KASPANZ :  TOP RETIREMENT INCOME ISSUES NZ2017

  1. New Zealand Superannuation is the safety net for all retirement income planning. The model is very sound, efficient, effective, reasonable costs, excellent for women, and keeping the elderly from poverty. The costs of New Zealand Superannuation over time are often exaggerated. The simplicity of the current model of NZ Superannuation, and its universality is acknowledged as a world leader. Minor adjustments only are required, as and when they surface. The evidence clearly shows New Zealand has got it right.
  2. Longevity and aging of the population is a demographic reality. The topic requires careful analysis and cautious assumptions. Longevity is increasing, but note the last few years of life may be impaired health, with a probability of a critical illness ( e.g. cancer, stroke, heart, prostrate, Alzheimer’s ) affecting many, and the ability to work an issue. Different implications for different groups apply when longevity is discussed. Longevity for some groups is lower than others!
  3. The surging upward trend of New Zealanders over 65 in paid work continues, probably due to the fact most cannot afford to retire. However it’s the educated that benefit mostly from this trend, and the hurdles to find work post 60 years, are considerable. Those most likely to need work later in life are the least likely to find it.
  4. 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. A task force similar to the Tax working Group 2010 would assist all political parties to make sound public policy choices re retirement issues.
  5. Kiwi Saver supports New Zealand Superannuation, and is a sound savings model. The default schemes should strongly consider an age related asset bias. Consideration should also be given to Government guaranteeing the scheme.
  6. Fees and costs for Kiwi Saver schemes are more transparent. This trend must continue.
  7. 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 aware principal applies.
  8. Buying an annuity or similar product upon retirement or following receipt of post Kiwi Saver lump sums and drawing an income from it, makes sense. A Kiwi Saver provider has recently introduced the first Kiwi Saver annuity product.
  9. Rental accommodation issues need review. Housing needs are changing and the standard length of term and the issue of short term leases is just an example of matters requiring attention. A national Housing symposium or similar would be helpful.
  10. Future projections for calculating pensions and health costs must recognize the inherent adjustment factor that occurs in society, and the error factor in long term assumptions is very high!
  11. Failure to Launch. The trend of parent’s supporting adult children with financial assistance continues unabated, yet this is severely affecting retirement years savings
  12. Current trends are parents subsidising children in various way, including significant child care for under 5’s, housing loans and early inheritance gifting. Parents homes are becoming, a place of return by siblings 20-45yrs following divorce or early work experience. These costs are carried principally by parents.
  13. Health topic requires both transparency and discussion. Chronic illness across all age groups, and the end of life costs (last 6 months all age groups) dominate costs. Increasing health costs due to technology and supplier fees and products, elective surgery options, and increasing the take up of private insurance require public debate.
  14. Senior year people need help in making better use of the wealth tied up in their homes, to support their living options. Conversations on retirement village issues, reverse mortgages /house equity issues and inheritance approaches, need visibility and increasing discussion.
  15. Pension eligibility and portability issues e.g. Section 70 of the Social Securities Act needs review and the Social Security agreements NZ has with a number of countries require transparency and monitoring. The spousal issue relating to overseas pension deductions and NZ Superannuation is unfair and needs urgent attention.
  16. 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. This is one occasion when we should follow the Australian example       Editor comment: Media commentary on retirement income issues, remains traditionally superficial with little historical trend analysis, or comparative research. Fullmark’s to Mary Holm, Susan St John, Rob Stock, Martin Hawes, and Brian Gaynor for their thoughtful approach. Awareness of Scandinavian approaches, and approaches adopted in countries like Canada, Chile and South Africa would be useful additions to the discussion. A task Force on Retirement Income is a must

Who Do you trust!

The editor is taking a rest for a 4 week period. Kaspanz refreshes and updates articles weekly, and shortly after my return, a Xmas newsletter will be mailed. Meanwhile

WHO DO YOU TRUST

The new Coalition Government headed by Labour Prime Minister Jacinda Ardern has announced that the age of entitlement for New Zealand Superannuation will remain at 65 years, and contributions to the NZ Super Fund will recommence.

In May 2017, the then National Party Prime Minister Bill English announced a reset of entitlement age rising over time to 67, contradicting his promise of  only a year earlier that it will be sticking to its promise to not raise the pension age. This turn-around was immediately challenged by Labours then Leader Andrew Little, who stated Labour, was “utterly committed “to NZ Super entitlement at 65. New Zealand First now a prominent part of the new Government has always been committed and consistent, with the entitlement age being 65 years. Labour on the other hand, has not been consistent.

For those who track statements over time, you will recall that  on December 5th 2013 then Deputy Leader David Parker announced Labour” would raise the age of eligibility for New Zealand Superannuation to 67”, make Kiwi-Saver compulsory for employees and increase the Kiwi-Saver contribution rate if voted into power”. On 20 August 2014 Labour again announced they were using the latest information on the state of the Government’s books to push its policy of gradually raising the retirement age to 67, stating “If elected on 20 September 2014, Labour would gradually phase in an increased retirement age of 67”. David Parker a key component to those statements remains a key member of our new Government, appointed Attorney General, Economic Development and Trade Minister.

My information is our new Prime Minister wants the entitlement age to rise, but politically holds to the current policy position of 65 years.

The consumer is both concerned and confused over these frequently changing positions (NZ First exempt). Consumers want consistency &certainty on retirement income policy, with long lead in times for any changes that might occur, so saving habits and understanding can take place.

What is needed is a task force report, similar to the Tax Working Group 2010, on retirement income issues.

To my knowledge there has been no extensive review (Commission or Working Party) on retirement policy issues for nearly 30 years.  It is long overdue, and any political party making new policy announcement’s on the age of entitlement to NZ Superannuation or Kiwi Saver without such material, is vulnerable to the accusation of making policy on the hoof, and political expediency.

Posted by Alec Waugh

Brian Gaynor on Superannuation : Historical and the future

Brian does his best to camouflage his bias re New Zealand Superannuation, and his view that it needs substantial changes. He never acknowledges that the model is recognized by most as world leading, and its been so beneficial for women and keeping poverty levels low, and its universality a huge strength. Its also cost effective compared  too other countries.  However he is always full of ideas, statistics, and a consistent writer with many thoughtful comments, never to be ignored. His ability to produce week after week, excellent articles is profound.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11940232