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Opinion: Actuaries and investment strategists Erickson & Associates outline a five-point plan for Government to get New Zealanders in an improved savings position. Your view?

KiwiSaver
Opinion: Actuaries and investment strategists Erickson & Associates outline a five-point plan for Government to get New Zealanders in an improved savings position. Your view?

By Jonathan Eriksen and Ian Gatland*

With the election coming up we thought the political parties might like some ideas.

The last Labour Government made great progress when it created KiwiSaver (KS) and set up the New Zealand Superannuation Fund (NZSF) to help maintain New Zealand superannuation (NZS). KS got ordinary New Zealanders saving for their retirement, while the NZSF helped NZS be more sustainable for the baby boomers.

National has used the global recession to stop contributions to the NZSF and remove the Government incentives from KS. These are disappointing knee-jerk reactions which weaken our society and the economic strength of the country.

Clearly there is a need to cut spending following the GFC. The Government’s policies have demonstrated their reluctance to make long-term but potentially unpopular decisions. They under estimate the severity and long-term risks of the global economic downturn.

We agree that the NZ economy is not booming but it is relatively sound. We see this as a reason to continue, rather than stop, saving for the future.

The PM’s refusal to raise the age of eligibility for NZS ignores economic and social reality and delays the inevitable.

A wise government would care for all age groups including an affordable superannuation funding policy as people live longer and the baby boomers retire.

For example:

Working longer

Encourage older people to continue working as long as possible. Older people who continue working can contribute to the economy longer, support themselves better and generally maintain their health longer. A higher age of eligibility for NZS , together with the opportunity to defer taking it until age 75 (at a higher rate) would provide an incentive to keep working, while still allowing an active retirement later.

70 the new 60  

Reduce the future cost of NZS by raising the age of eligibility but create workplace flexibility While those currently aged 45 up would continue to get NZS from 65, those now under 45 would not qualify for the full rate until 70. This should be phased in over the next 20 years.

Those not able to work until 70 should be able to get their KS savings from age 60 or 65, and would also be able to receive NZS from 60 onwards, but at a reduced rate. Those wishing to keep working beyond 70 could choose to defer taking it until age 75 (and then get it at a higher rate).

Incentivise with tax credits

Encourage personal retirement savings by reversing National’s latest changes to KS Keep minimum KS contributions at 2% matching tax-free employer contributions at 2% and the member tax credit at $1,042.86 per year. People can always save more if they want to.

NZ Super Fund top ups

Pre-funding NZSF to reduce the cost to be found in the future

A new government should resume modest contributions to NZSF. While we appreciate that the Government has a deficit to contend with, we also know that the costs of NZS will not go away.

This is a cost which should be spread over as many years as possible.

Long term bonds

Create a long-term annuity market in NZ by issuing longer term (25 year) Government Stock.

There is a current need for annuities to protect retiring KS members by giving them a secure income stream rather than risk living beyond their savings. However this cannot happen until providers have access to suitable long term bonds.

*Jonathan Eriksen is managing director of Eriksen & Associates and Ian Gatland is a consultant and practice manager for the Auckland firm.

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13 Comments

I can't help wondering where we would be if Muldoon hadn't scrapped the 1975 Labour superannuation plan. Short term thinking seems to be characteristic of the National party.

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Trolleyboy - Brian Gaynor did this exercise with a few reasonable assumptions and was written up in the NZ Herald Sat feature some time ago.

In short we would be one of wealthiest people on earth !

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Found a link:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=106…

There's a surprising number of recent articles containing the keywords 'robert muldoon'.

I was terrified of him as a small child, and it doesn't appear to have been a bad judgement.

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A megalomaniac government spending bilions vs a financially struggling society.

First and foremost - especially now in upcoming difficult times loaded with negative influences worldwide accumulating and accelerating on many fronts it is time for the government to listen what the NZpublic has to say. The relationship between the government and the NZpublic is divorced since many years. NZyouths are a forgotten generation in this country, the economy not performing. A working relationship is urgently needed.

We need open, public debates/ forums preferable in prime time 7- 9pm and on the national TVchannels. The NZmedia should be more involved in that process also.

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" and remove the Government incentives from KS "  ??      - isnt the $500   the govt puts into a new  KS a/c being opened an incentive ?

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Very hard to save for your future when my mortgage needs paying today,kids need feeding and every time you pass wind theres another tax somewhere.on top of that a plumber charges me $75 CALL OUT FEE on a week day when the total bill is only $205.

at the moment i have to live in the present and worry about the future at another time,after all the rest of my life is in the future.

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Two points.

1.  No truly democratic government can ignore the wishes of it's constituents for very long.  The result is government policies that do not address core issues society at large is not willing to be addressed.  Before you place all blame at any governmets feet you should look at the mirror and to your left and to your right for those of equal or greater culpability.

2.  One of the limitations of Kiwisaver is that is only saving for one single purpose, superannuation.  So your phrase "saving for the future" is somewhat misleading.  Business investment in productive enterprise is at best a secondary outcome with the associated loss of control and efficiency.

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The pity with investment/Accounting types is that all they understand is money.   Work harder, save more - all good stuff but more important than all this is making creative smart stuff that the world wants.  Our whole ecconomy is geared to low creativity, low wages and low productivity.  It dicourages exporters with a highly volatile currency and leaves speculative investments as the only outlet for the populations endevours.

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Cue Bernenke operation twist, forcing people into more risky investments.  What you want when you are old is security, and when you are saving for retirement you want to know that what you saved is what you will get.  The fiat ponzi fractional reserve system offers none of those things.

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the unions have been very silent on raising the pension age.Icannot see how they can

support labour on this policy.

andrew little,time to arise from your sleep

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Andrew Little is very moderate for a union / Labour MP....maybe he actually agrees with it.

regards

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Here are some real savings, a rent to own kiwisaver policy, so when you reitire you can own your own home.  Should be funded by govt just to cut out the banks, payments based on the actual cost, adjusted to the cpi every year.  Install solar panels, better insulation etc to future proof the housing funded in the same way, at cost adjusted for the cpi.  There are many other initiatives that could happen in this way if govt had the nuts to get rid of the parasitic fire sector.

Another idea, instead of having a hipocritical govt telling/forcing us to save while they borrow like theres no tommorow.  How about a government that walks the walk instead talking the talk.

We don't need banks, they are just parasitic middlemen sucking the life out of New Zealand, and the world.  Money is easily government issued, and doesn't need to be interest bearing.

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You mean a Govn that actually....uh....over-taxes and saves the balance for a rainy day......oh god that cant be right......that would be competant.....and a bit Keynesian......cant have that now can we.

Hot water panels or electrical soalr panels?  the former probably Chch and north is probably economic, the latter I suspect will never be so.  If you are thinking about that much money I'd suggest the millions spent on tide, a better return....

Solar  water 1.3million house holds at $4k a go....

regards

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