Top 15 New Zealand Retirement Income Issues of 2024
RAISE THE ACCOMMODATION SUPPLEMENT LEVEL
Many need an accommodation supplement to meet their rental needs on top of NZ Super. Many are ineligible for additional assistance because they fail the asset test. The current level of $8,100 (set in 1988) is woefully outdated and needs to be increased urgently to a sum well over $50,000. The cash that an older person has from KiwiSaver and other deposits is needed for future retirement needs and should not reduce housing assistance.
- How do Governments get away with all their funding models, by not raising levels annually by at least the CPI figure and Inflation?
THE NZ AGED CARE FUNDING MODEL IS NOT FIT FOR PURPOSE
The model is over 20 years old. Successive Governments have under-funded, aged care. Why have the voices speaking for this group, e.g. the aged care Commissioner been unable to get successive governments to move on it? BEWARE THE GOVERNMENTS TRACK RECORD ON RETIREMENT INCOME
12 months in, no knee jerks, thank goodness.
The last National Party term 2008-2007 had both the track record and active trend of slashing NZ Superannuation and Kiwi Saver costs, to the detriment of New Zealanders.
They removed the Kick start sum for Kiwi Savers in 2015, and implemented various Kiwi Saver cuts to existing legislation. Raising the current age of
entitlement to NZ Superannuation (65) remains both National party and Act policy. Coalition partner Act approach of slash and burn policy, (often raising discredited policy tools of means testing and reducing universality) is dangerous. The right-wing parties are rarely friends of the retirement income consumer, generally ignore advice from either research evidence or advisory bodies like the Retirement Commissioner. Impulsive actions never results in good public policy Fortunately, NZ First scuttled their plans to raise the
Retirement age.
NEW ZEALAND SUPERANNUATION IS THE SAFETY NET FOR ALL RETIREMENT INCOME PLANNING.
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Praise it, never devaluate successful public policy.
“New Zealand Superannuation is the best protection against longevity risk, and we all need a good NZS system. It is quite possible that, despite the introduction of KiwiSaver, younger cohorts will need NZS just as much, if not more, than older cohorts, because of lower home ownership, lower wage growth, less stable jobs, and lower savings rates.”
Longevity in New Zealand report, Alison O’Connell. Alison O’Connell New Zealand Society of Actuaries PHD
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”.
Like NZ Infrastructure, a Parliamentary accord on NZ Super should be in place, to stop meddling from political parties floating whims and personal agendas.
KIWI-SAVER SUPPORTS NZ SUPER, AND IS A SOUND SAVINGS MODEL
Now 17 years in existence. Time for a review.
Retirement Commissioner Wrightson said while KiwiSaver had
“become instrumental in encouraging retirement savings, New Zealanders – and their employers – are simply not contributing enough”.
“We could improve this with a higher default contribution rate and look at increasing the government contribution for those who do not benefit from employer matching, like the self-employed,”.
MANAGEMENT FEES ON KIWI SAVER AND MANAGED FUNDS HAVE TRENDED LOWER, AFTER YEARS OF BEAUTIFUL MONEY FOR FUND MANAGERS.
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.
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 is 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.
SENIORS NEED HELP IN MAKING BETTER USE OF THE WEALTH TIED UP IN THEIR HOMES, TO SUPPORT THEIR LIVING OPTIONS.HOME REVERSION SCHEMS
- Conversations on retirement village issues including what is the best age to utilize this option . The 70’s is about right; 80 plus is too late.
- Reverse mortgage options . Home reversion, equity release.
- Downsizing homes. Councils have blocked diversity in this area over decades, and their consent process a cash cow. Councils impede retirement needs of Seniors.
- Amend your Inheritance approach.
- Home Reversion buying an annuity or similar equity release product upon retirement or following receipt of post kiwi-saver lump sums and drawing an income from it, makes sense. 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
Visibility and more discussion on each of the above issues
HOUSING
Housing costs are of critical importance when considering retirement income policy. Smaller home size, and the attractions of apartments and townhouse style units must be a key focus
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.
Wealthy elites protect their massive dwellings and views, often at the expense of others, their power always reflected in final policy decisions .
LONGEVITY: BE CAUTIOUS
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, prostate, 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! Māori needs require different policy tools.
Be cautious of those predicting improved health stats for the population, just look at the obesity trend 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, e.g., 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.
FAILURE TO LAUNCH: DON’T USE RETIREMENT SAVINGS TO ASSIST YOUR CHILDREN
Show the kids the door to the world, leaving home is part of growing up! If they return charge them a good rent. 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 childcare 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 the above is severely affecting retirement savings!
TE ARA AHUNGA ORA RETIREMENT COMMISSION.
Retirement Commissioner Jane Wrightson performance has revived the Commission . Engagement in research both contracted and internal is important, and the commission should be the source of authoritative analysis on Retirement Income issues. A hub of research including contracted work on topics has emerged, this must continue. PHD students on retirement income topic must be encouraged, 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 The focus on Financial Literacy while having merit, requires too much implementation resource to have meaningful effect, and a review of effectiveness is suggested.
Switching funding into PHD research projects and supporting academic research facilities like the Pensions and Intergenerational Equity Hub Retirement Group 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. The level of coordination and knowledge within Government circles on retirement income issues requires improvement?
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.
A RETIREMENT INCOME SYMPOSIUM IS REQUIRED.
The last one was the Task Force on Private Provision for Retirement, August 1992. Suggest a retirement income task force like the Tax Working Group 2018. This would assist all political parties to make sound public policy choices regarding retirement issues and provide a benchmark information base. The Future of Super symposium March 21, 2024 was a good start.
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” Poor policy. Long overdue change in 2024 is pending with the Tax Deposit Bill passed in law! But taking too long for the formula/regulations to be implemented. Get on with it!
Alec Waugh: Editor www.kaspanz.com