Savings advocates applaud Labour's savings platform; suggest New Zealanders need to wake up to reality that retirement will be self-funding initiative. Your view?

Savings advocates applaud Labour's savings platform; suggest New Zealanders need to wake up to reality that retirement will be self-funding initiative. Your view?

By Amanda Morrall

A key plank of Labour savings platform, long ignored by New Zealand politicians fearing "political suicide", is being heralded by savings industry players as a brave but necessary step to protect the welfare of this nation's citizens in old age.

However unpopular, raising the age of retirement from 65 to 67  is a reality that New Zealanders, regardless of political persuasion, will have to come to terms with to restore the sustainability of New Zealand Super set to undergo a massive drain down by a crush of retiring Baby Boomer Super, savings industry figures argued.

Former Savings Working Group member Paul Mersi said New Zealanders who opposed to raising the age of eligibility are living in denial.

"If it's political suicide to even go there (making it an election issue) then New Zealanders will deserve what they get," said Mersi.

"People have to be thinking about this issue, you can’t just dismiss it out of hand by thinking that we’ll always be able to keep retirement age where it's at and continuing receiving a well funded pension forever.''

New Zealand Super is currently set at around 66% of the average wage for a couple in retirement.

Along with raising the age of retirement, a move championed for some time by Retirement Commissioner Diana Crossan, Labour is proposing to make KiwiSaver compulsory, to raise employer contributions from 3% to 7% by 2014, and to restart funding the New Zealand Super, the combined effect of which will bolster and fortify savings.(Alex Tarrant and Bernard Hickey carry the details here).

While questions were raised about just how Labour would finance contributions to the New Zealand Super Fund (frozen by National in 2009), savings sector officials uniformly applauded Labour key recommendations.

Retirement  Commissioner Diana Crossan was unavailable yesterday however her office restated its position that it would not comment on any key issues in the run up to the election -- allowing politicians to put their views before the public.

Workplace Savings CEO Bruce Kerr described Labour's adoption of the commissioner's recommendation on age of retirement as pragmatic.

"We think it's politically brave, but give Labour brownie points for recognising the issue,'' said Kerr, further applauding Labour for its proposal to decouple the increased age of retirement from KiwiSaver as a safe guard for those for whom might be financially challenged by the move.

While Mersi acknowledged the NZ Super as it stood was a sacred cow, he said its plan to gradually phase in an increased age of eligibility would mitigate the impact.

"The proposal gives people a good degree of warning. You might have to work a few months longer than you expected but you'll have plenty of time to deal with that.''

In the event of a Labour victory, the party would phase in the age of retirement over a period of 22 years, with two-month age adjustments made annually.

The policy change wouldn't effect anyone over the age of 55 currently and would partially affect those between the ages of 45 and 55.

"So if you’re 45 you have plenty of income and time ahead of you to plan for that,'' said Mersi. "For most people that change shouldn't make a huge issue but is an easy one to scaremonger over.''

The Investment Savings and Insurance Association, representing the managed funds sector, also welcomed Labour's recommendations on savings.

'Ageing population the elephant in the room'

In raising pension age eligibility, ISI chief executive Peter Neilsen said Labour was acknowledging the elephant in the room - increasing human longevity.

"People are living a lot longer. Our children will most likely get to age 80 or 100. We're moving into an environment where it is quite possible people will spend more time in retirement than they were in the workforce and policy will have to change to reflect that.''

While the association hadn't taken a position on making KiwiSaver compulsory, Neilsen said the ISI wanted to encourage as many people in employment to become a member of some savings scheme.

In making KiwiSaver compulsory, he warned that the Government would have to be very clear about defining who and under what circumstances people could opt because of the possibility that some households or individuals living in chronic debt simply could not afford it.

As for raising contribution levels for employers (from National's proposed 3% next year to 7% by 2022), Neilsen said that reflected an economic reality that would ultimately be in the country's best interests to act on.

"Increasing contribution rates to a similar level to where they are in Australian starts a transition to a savings base rather than tax based superannuation arrangement which is better for New Zealand in the long-term.''

On the face of it, the move appears to shift the savings onus onto employers.  In fact the opposite is true.

"It’s a moot point," said Kerr, "We think anecdotally that it’s a minority of employers who are paying KiwiSaver over and above salary. At the end of the day it's a trade for wage increase.''

Of greater concern to Workplace Savings was how Labour's savings plan would impact on alternative employment savings schemes. Labour indicated they would not face any changes as long as they became "KiwiSaver compliant.''

Kerr said he interpreted that to mean that employees invested in such schemes would have to give up the flexibility of a portion of their funds not being locked in to age 65, regarded as one of the strongest selling points for plans outside of KiwiSaver.

"A lot of people in existing workplace schemes will see that as too inflexible. My initial reaction is that they'll need to be considerable investigation into what they mean and how that will happen.''

'Call for bipartisan accord'

Regardless of a Labour victory or loss, Kerr said parliamentarians across the spectrum owed it to New Zealanders to come up with a retirement saving strategy that wasn't subject to the whims of politicians currying favour with the public in exchange for votes.

"It would be great to get major political parties to reach an accord in KiwiSaver and retirement age so they can lock in an approach that's best for New Zealanders.''

KiwiSaver provider ANZ Wealth echoed the sentiment, also emphasising the importance of public input.

"Having a robust retirement savings environment is crucial to New Zealand's economic and social future,'' said ANZ Wealth's managing director John Body.

"The critical thing is for New Zealanders to develop a regular savings habit and to understand more about how and where to invest their money productively.''

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

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Labour have just possibly got my vote. Never thought i would say that after the last govt, but reality is they're manning up to this critical issue unlike smile and wave key

+1

Im not really against Key/National, but I am going to reward Labour on this one - not withstanding new policy announcements from the Nats of course.

We all know BH is strong on this position, Im hoping that the policy will push the issue into the limelight and give BH a platform to continue his crusade from.

Bernard's now a Crusader ? ...... welcome to the Red & Black side , me old son !

A start...however some of the BB can share and compromise to some degree as well. This is still a push to generation X and the following generations. As valid is the agrument  the older have less time to alter their position to a policy change just as many have greater certainity of their position and could make a compromise.

Want community buy in then lets have some collective responsibility.

Its just another bailout plan from one of the big goverment socialist contenders.  Coerced "savings" schemes are nothing more that another tax to get past goverments off the hook from decades of atrocious financial planning.

The real elephant (that never gets discussed publically) is that the govt spending is and has been totally out of proportion to our tiny GDP.  If a business had a similar admin overhead it would not be in business. !!

The timing of this initiative is ironic given the TPTB in Europe have instructed that Greek pensioners are to accept a 50% haircut in their government debt funded pension plans.

Self funded retirement will increasingly become a mythology via the savings mechanism.

Savings in general are others liabilities and when it becomes entrenched policy to cut them in half, the will to save will evaporate.

Equally, equities locked up in state controlled pensions plans will not escape this dilemma as annuitisation rules can cut the proposed gains in half just as easily. 

Those retiring today with savings are finding this out in another way. - NPV values are miniscule wih interest rates at such low levels compared to inflation.

The RBNZ has certainly made it's stance clear with the Open Bank Resolution proposal. 

Frozen/deprecated savings by means fair or foul is the future. 

Oh you put it so nicely SH....I would use other language but Bernard will ban me....

The game now is to shift capital to aus to take advantage of the govt guarantee on deposits over there, even if the aussie housing bubble is in trouble...better returns and safer too...

Bollard's OBR is a page out of PSIS "Piggy" history....Bernard should rerun some of the better headlines from that event...let the public know what they are in for...!

geeeeezzz wolly, if you werent so right all the time I'd say give it a rest. The flaws in these idiot ideas are so obvious you gotta wonder what substances they use when dreaming them up. I've said it before, Hickey and Co should pay to get you up to Grey Lynn to do an interview with you. Reckon the government should put you on a retainer as the "chief ideas tester". How does $5 million sound?  Dont ya reckon the same thing would happen if the Big Kahuna party got control and introduced the 6% tax on capital?

Couldn't agree more. Very well put Stephen.

i am not an intelligent person ,but why can't the government of the day just tax us 4 or 5 percent more and allocate it to individual accounts.Then add their little amount together with the employers contribution and thats it. can it be that simple.why do we need AMP,ASB or any other institutions involved

So far unlike National they are at least willing to look into the future, National have their head well and truely entrenched in the sand.

National's polices can only really be described as - borrow and bribe.

No they are not......they are ignoring Peak Oil.

regards

 "...they (Labour) are at least willing to look into the future"...and the future is not nice for them...at least another 3 years yelling abuse across the House...likely as not a party leadership bunfight leading to yet more dirty linen hanging out for the public to laugh at...and then another 3 years yelling more abuse....Labour will hard pressed to make it back without turning Green and 'making up' to Hone.

I'm affected by those proposed changes, but absolutely happy to see retirement age rise.  Also prepared to accept compulsion, don't like it, but suspect we (NZers) probably need it.  What I'd like to see, if I am to be compelled to be part of Kiwisaver, is to be able to spread my KiwiSaver investment across multiple providers.  Don't think it's fair to be compelled to have all my (KiwiSaver) funds in one basket - which is essentially the model we have currently, as I understand it.

"I'm affected by those proposed changes, but absolutely happy to see retirement age rise". 

Long live the "one person, one vote" system!...

 The yoo is deliberate...right!

"Labour's policy of making KiwiSaver compulsory will be widely supported, if polling conducted for the Investment Savings and Insurance Association is anything to go buy."

Fallow in the Herald.

Gosh you don't spose the ISaIA wants to boost funds under their management...do you!

I'll do my own self funding retirement thanks.  Has kiwisaver got arable land, and physical gold?  I'd buy that, otherwise count me out, It'll be another 35 years before I retire, paper will be worthless, and global population 10bln ++, oil not happening.  I'd settle for a house and a garden with some chooks and a bit of physical metal.  Keep your paper thanks.

Well said ! .. I do endorse your spirit .

.. Why do we automatically turn to Nanny-State to lift us up , bail us out , and pension us off !

We require free thinkers , independent spirits , a return of the " Good Keen Man " to rekindle some strength and pride in our great land , girt-by-sea .

[ tootle off to HK for some stunning gold coins , and they're only 1 or 2 % dearer than a physical ounce of bullion  . Go to a reputable bank , of course ]

Welcome back Gummy. You were missed.:)

Thanks , Amanda .. . Gummy has been in Thailand trying to come to grips with their economy , whilst dodging the " lady-boys " of Pattaya ,  who were trying to come to grips with me .

.. Luckily , I managed to beat them all off .

Because thats how its always worked here, in the Land of the Long White Cloud, Gummy. 

Once kiwisaver is compulsory, I suspect then retirement will become fully self funded. Those people who can't afford to live will get a pension that will be asset and income tested.

 

Lomg term National supporter -but we need to address this issue and now.  A bi - partisan approach would be most welcome. Congrats Labour for raising the issue.

I don't think I can bring myself to vote Labour but as Key is so  dogmatically sticking by his silly 'its not a problem' approach coupled with the whole partial selling of ket state assests  I am tending toward with holding my Nat vote this time.