Monthly Archives: December 2015

The TOP DOZEN RETIREMENT INCOME ISSUES 2015

At the end of each calendar year, Kaspanz  www.kaspanz.com  lists the dominant retirement income issues.

Kaspanz   TOP 12- RETIREMENT INCOME ISSUES NZ -2015

  1. The surging upward trend of New Zealanders over 65 in paid work continues, probably due to the fact they cannot afford to retire.
  2. 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!
  3. Longevity and aging of the population is a demographic reality. The topic requires careful analysis and cautious assumptions. Analysis of  New Zealand’s population structure for calculating pension and health costs, needs to take into account changes in infant mortality, the increasing adult immigrant population , the effect of increased ‘Lifestyle diseases’ and the very conservative approach New Zealand adopts to end of life issues.   Similarly, the tools used to express ‘Life Expectancy’, need to be refined to ensure incorrect predictions, using outdated methods, are not taken at face value. Increasing health costs due to technology and supplier fees and products, end of life care approaches ,elective surgery options , all require public debate
  4. 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. No realistic alternative approaches to NZ Super have appeared, and only minor adjustments are required.
  5. Political whim approaches to New Zealand Super, e.g. NZ First Pro-rata and United Future Flexi Superannuation; and Act Party comments on citizen referendums, add limited value to the conversation on New Zealand Superannuation. The evidence clearly shows New Zealand has got it right. Consumers want consistency in retirement income issues, and the first Parliamentary party to accept this, will harness good will and ballot box support
  6. Senior year people need help in making better use of the wealth tied up in their homes, to support their living options. Family conversations on retirement village issues, reverse mortgages /house equity issues and inheritance approaches need to occur
  7. 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.
  8. Fees and costs for Kiwi Saver schemes are becoming more transparent and high cost funds rarely perform. Rule of thumb, change to a lower fee provider. The issue of current Kiwi Saver fund contributions not being sufficient needs attention. Remuneration of fund managers is also too high and this issue links to the over payment of CEO’s and senior managers across all sectors. Solutions to this long term trend are required.
  9. Passive and index funds, generally produce better returns than active funds management over time.
  10. Annuity options for those exiting Kiwi Saver need attention.
  11. 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
  12. Media commentary on retirement income issues, remains traditionally superficial with little historical or trend analysis, a few voices dominate the headlines. Awareness of Scandinavian approaches, and approaches adopted in countries like Canada, Chile and South Africa would be useful additions to the discussion.PS         Retirement Policy and Research Centre, Auckland University Business School does an excellent job in highlighting retirement income issues. Susan St John, Michael Little wood and Claire Dale need a round of applause for their efforts! With Michael stepping down, it will be interesting to see what new resource Auckland University puts into the Centre.

Posted by Alec Waugh

OECD: Pensions at a Glance 2015

The Organisation for Economic and Cultural Development (OECD) has produced its latest comparative and analytical report of Pensions at a Glance. In terms of non-contributory pension schemes New Zealand continues to head the list (though, arguably, OECD understates the full value of NZ Super as a percentage of average wages). For contributory schemes the picture is not encouraging: for people whose connection to the workforce is tenuous, pension payments can be meagre (though some countries have safety nets to compensate for this) and there is an obvious gender effect (women taking time out to care for babies/children). Interesting reading.

Posted by Michael Moynihan

Further to your message to OECD to be informed when OECD Pensions at a Glance is released:

Just released!

Pensions at a Glance 2015 OECD – Paris, 1 December 2015 – Further reforms needed to tackle growing risk of pensioner poverty, says OECD

Recent reforms have made pension systems more financially sustainable and pensioners have higher living standards than ever before. But future generations are likely to find their pension entitlements much less generous than today’s and many may face a serious risk of pensioner poverty, according to a new OECD report.

Pensions at a Glance 2015 says that about half of OECD countries have taken measures in the past two years to make their systems more affordable in the long term. A third have made efforts to strengthen safety nets and help some vulnerable groups of pensioners.

Retirement ages have risen substantially, with retirement at 67 becoming the new 65 in many countries. Several countries are planning to move towards 70, including the Czech Republic, Denmark, Ireland, Italy and the United Kingdom.

Since the early 2000s, effective retirement ages have continued to increase steadily, especially for women. Employment rates of people aged 55 to 64 years have increased sharply in many countries: from 45 to 66% in Germany, for example, from 31 to 46% in Italy and from 52 to 57% on average across the OECD.

However, significant challenges remain, with population ageing accelerating in many countries partly as a result of changing labour market trends. Many of today’s retirees, at least men, worked for most of their lives often in rather stable jobs. But a job for life or even an intermittent career might not be the norm for people starting out today.

Unemployment rates, especially among younger people, remain very high in many countries, as do long-term unemployment rates among older workers. A decline in jobs with open-ended contracts and the parallel rise in temporary and often precarious jobs are also reducing the continuity of contributions to pensions that workers can claim in retirement.

Time out of work means time out of the pension system in some countries. As a result, many more people will receive lower pensions when they retire, says the OECD.

In light of this likely scenario, some countries need to re assess their safety nets for pensioners who have not contributed enough for a minimum pension. Across the OECD, these provide 22% of average earnings on average, ranging from 6% in Korea to 40% in New Zealand. Some OECD countries, such as Chile, Korea, Mexico, Turkey and the United States, combine relatively high risk of pensioner poverty and low benefits, and should consider increasing the value of safety-net payments. Most countries also index their first-tier pensions to prices, so their value compared to earnings declines over time, as prices tend to increase less than wages. Price indexation is attractive to governments facing budgetary constraints but also runs the risk of fuelling pensioner poverty as safety nets will lose value over time, according to the report.

Pensions at a Glance 2015 also highlights the challenge of the current low-growth, low-interest rate environment for savers and financial service providers offering life insurance and annuities. In addition, the mortality tables used by insurers in many countries do not take fully into account projected improvements in life expectancy. This could lead to pension funds and life insurers seeking higher yields and pursuing riskier investment strategies that could ultimately undermine their solvency. This would in turn jeopardise both current and future retirement income security for many people.

Country-specific highlights on OECD countries and other highlights of the report are available at: http://oe.cd/pag