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.
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.
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).
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).
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).
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.