Commission for Financial Literacy and Retirement Income says it is 'inevitable' private savings will play a larger role in future

Commission for Financial Literacy and Retirement Income says it is 'inevitable' private savings will play a larger role in future

The Commission for Financial Literacy and Retirement Income says it is inevitable that 'private provision' of retirement income will play a larger role in retirement for New Zealanders in the future.

The commission has released a package of policy recommendations designed to make New Zealand’s system of retirement income socially, economically and politically sustainable for decades to come, has been released today by the Commission for Financial Literacy and Retirement Income.

The package includes 16 key recommendations that can be seen below.

Retirement Commissioner Diane Maxwell says the 2013 Review of Retirement Income Policies reflects the impact that an ageing population will have on our current retirement income system.

“We’re entering a period of unprecedented demographic change, with around one in four New Zealanders aged 65 and over by mid-century. The shape of our population will have changed and some social norms along with it. It’s a positive change, but it will require some planning.

“This Review looks at the issue from different perspectives including the sustainability of New Zealand Super, and the role of KiwiSaver and other private savings in providing us with an adequate retirement income,” she says.

Ms Maxwell says the 2013 Review also considers the impact of other policy areas on retirement income.

“There are a range of policy areas that will affect the wellbeing of older New Zealanders in the future including the availability of age-friendly housing, and the growth of age-friendly workplaces that allow us to continue working. These are all issues we need to be thinking about now,” she says.

Ms Maxwell says it is inevitable that ‘private provision’, meaning private savings and assets, will play a larger role in the retirement income of New Zealanders in the future. To stimulate discussion around the issues, the Commission has today launched an awareness campaign alongside the Review called ‘What’s your story?’ The campaign features ordinary New Zealanders, young and old, talking about their financial plans and retirement.

After considering feedback, the Retirement Commissioner will make her final recommendations to the Government by the end of the year.

Recommendations

Keeping New Zealand Superannuation fair and affordable

1.That the proportion of life over the age of 20 in receipt of New Zealand Superannuation be kept at a minimum of 32 per cent (see pages 35 to 40).

2.That the Government establish, by 30 June 2017, a schedule and review process for New Zealand Superannuation, guided by the principles outlined in this document (see pages 37 to 40).

3.That a new method of indexation of New Zealand Superannuation, based on the average of percentage change in consumer prices and earnings but no less than price inflation in any year, be introduced from 2023 (see pages 46 to 50), subject to an adequate proportion of fiscal savings being applied to:

Measuring the impacts of the change on the living standards and wellbeing of older New Zealanders, and

Maintaining the real living standards of less-well-off older New Zealanders at the same levels as provided by the current system of indexation.

KiwiSaver

4.That the age of access to KiwiSaver balances be kept at 65 (see pages 40 and 84).

5.That as soon as fiscally prudent, an auto-enrolment day be held for employees who are not currently members of KiwiSaver, with retention of the right to opt out (see page 74).

6.That the Government establish a joint working party, chaired by the Retirement Commissioner or her nominee and comprising public and private sector representatives, to identify gaps in the available data on KiwiSaver such as on the savings paths of different segments of the population, and to report by 1 December 2014 on ways in which those gaps can be filled (see pages 75 to 76).

7.That the Government agree to the Retirement Commissioner convening a broadly representative review to determine the viability of different approaches to the voluntary annuitisation of savings including KiwiSaver balances on retirement (see pages 74 to 75).

8.That the Ministry of Business, Innovation and Employment report to the Government by 30 June 2014 on means to fairly maintain the employee contributions of KiwiSaver members while they are on parental leave (see pages 59 and 65).

9.That the Government provide the Commission for Financial Literacy and Retirement Income with an explicit mandate to lead the provision of financial education for New Zealanders (see pages 84 to 87).

Taxation

10.That in line with a recommendation of the Savings Working Group, the Government remove tax on the inflation component of interest on simple savings products such as bank deposits and bonds (see pages 51 to 52).

Age-friendly housing

11.That the Ministry of Business, Innovation and Employment report by 1 December 2014 on ways to increase the supply of age-friendly housing (see pages 76 to 79).

Age-friendly workplaces

12.That the Ministry of Business, Innovation and Employment work with employers, industry associations and unions to implement ways to encourage the recruitment, retention, retraining and mobility between jobs of older workers, and report back on progress by 1 December 2014 (see pages 79 to 83).

International pensions (see Appendix One)

13.That an individual’s overseas state pension entitlements should be directly deducted against their own individual entitlement to New Zealand Superannuation and that any excess should not then be offset against the individual entitlement of their partner.

14.That the Ministry of Social Development improve information and advice for recent and prospective migrants and returning New Zealanders on the implications of the direct deductions policy for their future retirement income.

15.That the Ministry of Social Development improve the public availability of decisions on the classification of overseas pension schemes whose pension payouts are subject to the direct deduction policy.

16.That the Ministry of Social Development explain the rationale behind each international pension scheme classification.

The New Zealand Bankers’ Association put out the following statement on the paper:

“The discussion document contains several practical recommendations that, if implemented, will help New Zealanders better prepare for retirement. This is especially important as we face an ageing population that’s living much longer than previous generations,” said New Zealand Bankers’ Association chief executive Kirk Hope.

The Association was pleased to see the Commission encourage greater KiwiSaver enrolment, better tax incentives for savings, and a review of New Zealand Superannuation.

“A mix of private and publicly funded retirement savings is a reality for us today. KiwiSaver has been very successful in getting people to start saving for a better retirement. Moves to get more people on board would benefit individual KiwiSavers and the country as a whole.

“The proposal to remove tax on bank deposit savings interest above the rate of inflation will encourage private savings across the board. It’s also good news for retired people who often rely on the income from their savings to make ends meet.

“We’d also welcome a review of New Zealand Super to keep it both fair and affordable as the population evolves.”

On the proposed review of voluntary annuities, Hope said it was important to investigate ways for people to spend their savings wisely in retirement.

“The discussion document sets a practical way forward. We look forward to seeing it put in place to help secure a brighter retirement for all New Zealanders,” added Hope.

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?

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So timid a plan.   Lots of little things which are not neccessarily wrong--  but we need to have a bold plan that goes out 30 - 50 years
I would suggest a stepped elimination of (compulsory) current national superannuation over say 30 -40 years.
Coupled with an introduction of a 100 % participation Kiwsaver scheme.
And only if needed -- a bare bones universal welfare benefit for those who somehow escaped the contributions net.  Which should be very few. 
 

KH - agreed. I'm 58, but I don't make contributions, haven't got a stash, and don't expect a pension. I'm working on the basis that the wheels are coming off before 2020, and that it is best to invest in being resilient.
Ultimately, we will have a lot of folk unable to 'pay' but they'll be time-rich and probably skilled. My suggestion to the DCC this last round, was that they look at a work-for-rates-rebate scenario in the future; old folk mowing the soccer ground etc.
Same goes nationally. The problem with Kiwisaver is that it relies on 'investments' and their supporting infrastructure (manks, markets, Dow). You gonna rely on that stayn?
30-50 years out, of course, all bets are off.

Work for Rates, or rather the principle of that sort of thing is one of the best ideas I have heard in a long time.  Very good
Mind you it's the council.   Risky. In the soccer ground scenario they will probably raise the requirement continually, and end up with a fence and guards to keep us in.

KH - Yes, we'd need to do something like that - if we wanted to entirely eliminate the public cost of pensions. 
 
But you need to establish first that eliminating the public cost of pensions (as opposed to keeping it to something like its present proportion of GDP, which is what the Retirement Commission are aiming at) is something that we want to do.

Well it is something I want to do MdM and that's why I am suggesting .  As for others?  Maybe.  They will say.

Is it just pensions whose public cost you want to eliminate, or all forms of wealth transfer? 
 
For example, we could completely eliminate the public cost of education through an extension of the student loans scheme and/or forced savings; or we could completely eliminate the public cost of healthcare by forcing everybody to take out private health insurance.   I believe something like that is actually in place in Singapore.
 
Are you advocating those as well, or is there something about pensions in particular? 

I think a lot can be done to equalize the New Zealand tax system which currently disproportionately favours the asset rich and the highly levaraged against workers and savers, by failing to taxi the appreciation of asset values and excluding the mortgages and rents from GST. 
 
Currently highly leveraged tax payers don't have to pay taxation on mortgages or their rentals and they can receive tax rebates on their interest costs. No wonder our economy is so skewed towards property. 
 
I think it is incredibly irresponsible economically to prolong retirement age worker's participation in the workforce, because this just crowds out new entrants (especially young men) who wish to enter the workforce, but lack the experience of their elders. This just compounds the lack of jobs for the young and newly graduated who already comprise disproportionate numbers of the unemployed. This will only further suppress wages which need to rise if we will be able to pay for the increasing financial commitments of the elderly. Corporate proifts can be easily shifted to offshore tax havens, whilst PAYE is less mobile. 
 
 

No.  Not needing to change Healthcare and Education costs as well.  Just trying to offer a sustainable solution to current super debate which often gets to the level of Boomer bashing.  And I can't stand the one shot short term solutions to something which needs to operate on a 100 year horizon.

There's quite a difference between making something "sustainable" and completely eliminating it.  Why is it "sustainable" to keep spending on healthcare and education, but not on super?
 
 
 

MdM.  It's not eliminating a retirement system.  We need one and it needs to be systematic.  But what I suggested does alter the way it is done.
As for Healthcare and education.  There is no furore over those except at the edges.  With no intergenerational bashing going on which is creating some instability about retirement incomes on something something that needs to be stable and predictable.

Sorry, that was a careless use of the term.  Your proposal would eliminate the public cost of the super system - ie, privatise it - not eliminate the super system itself. 
 
Your comment makes clear that by "sustainability" you are talking about political/social sustainability rather than economic, so we've slightly been talking past each other. 
 
I do actually agree that a pre-funded system would probably be more sustainable than continuing to rely on funding through taxation - once it was established.  However, getting from here to there is likely to be extremely contentious, since it will involve several decades' worth of individuals having both to fund their own future pensions and to continue to pay for present pensioners.  Some of those individuals will never see the eventual benefit, since by the time the taxpayer cost of existing pensioners started to reduce, they would no longer be taxpayers - cue moans about "paying twice". 
 
Thus it may be easier to move towards a part-prefunded approach than a fully-prefunded one; and there may also be merit in doing it communally, ie through the NZ Superfund, rather than individually.

No.  Not needing to change Healthcare and Education costs as well.  Just trying to offer a sustainable solution to current super debate which often gets to the level of Boomer bashing.  And I can't stand the one shot short term solutions to something which needs to operate on a 100 year horizon.

MDM - 'want to do' isn't the question. "Can do' is the problem. GDP is a nonsense measure, by any measure. The Commission have - by association - failed if they have linked to it. It means they haven't grasped what is ahead - probably economics-trained.

However much or little wealth we have as a nation, however it is measured and whatever form it takes, there are still choices to be made as to how it is to be distributed.
 
What, if anything, do you think should be done to help those who are unable to provide food, shelter and clothing for themselves; and who should do it?

You can't talk about retirement without considering the elephant in the room which is those who own multiple properties which they can flog off as it suits: unearned/untaxed/undeserved capital gains. Remembering that the costs of house price inflation flow to renters nearing 65, infrastructure is paid out of taxes and if you've sat in your own home you may get a highrise for a neighbour so may want to move.
Neither should we forget those who have been swindled by finance companies, Ross asset management, Alan Hubbard or those with leaky homes. And may I add the largese of the left in supporting immigration and family reunification burdening national super. Then there is the vanishing vegetable garden which Helen Clark did her bit to get rid of. 
Only half of those opinions could make the MSM the rest would be shown as unsupported or otherwise trashed as a demented rave on Campbell Live.

You can't talk about retirement without considering the elephant in the room which is those who own multiple properties which they can flog off as it suits: unearned/untaxed/undeserved capital gains. Remembering that the costs of house price inflation flow to renters nearing 65, infrastructure is paid out of taxes and if you've sat in your own home you may get a highrise for a neighbour so may want to move.
Neither should we forget those who have been swindled by finance companies, Ross asset management, Alan Hubbard or those with leaky homes. And may I add the largese of the left in supporting immigration and family reunification burdening national super. Then there is the vanishing vegetable garden which Helen Clark did her bit to get rid of. 
Only half of those opinions could make the MSM the rest would be shown as unsupported or otherwise trashed as a demented rave on Campbell Live.

Looks as though you are suggesting that pensions should be paid only to people who are properly deserving of them.   
 
Do you really think that bureaucrats are capable of drawing up an objective set of criteria to determine who is deserving, or that they should make decisions on an individual, case-by-case basis?

I would probably be happy to take full responsibility for my retirement if the tax system provided significant incentives to save and invest throughout my working life. The current system seems to be focussed on punishing savers and investors, leaving property as the only "investment" incentivised by the tax system.
I hope I turn out to be wrong, but centre left governments will probably always tax savings (only the “rich” can afford to save) and centre right governments will probably leave any such taxes untouched for the sake of the revenue generated.

If you expected your savings to be significantly incentivised you wouldn't be taking full responsibility.  You would be expecting taxpayers to bear part of the cost of your retirement, as happens under the current system.   The only difference would be when that cost was incurred.