While NZ gives a lot of thought to putting money into our retirement income system, we don’t help people when it comes to taking it out, expert panel says

What used to be an almost “one-size-fits-all” picture of retirement has broken down in New Zealand, an expert says.

“The over-65 population is just getting more and more diverse, and the needs are just becoming more and more diverse,” the Retirement Commission’s director of research and policy Patrick Nolan told the audience during a panel discussion on investment, KiwiSaver and retirement at the Financial Services Council Conference. 

“You’ve got real differences in need between if you’re over 65 and you’re working, you own your home - [it’s a] very different position than if you’re out of work and you’re renting for example," Nolan said on Thursday.

This reflected a common theme from two panels at the Auckland conference, which was held on Wednesday and Thursday: how to help people once they reach 65 take out money from the retirement income system.

On the panel with Nolan was facilitator and Lifetime Retirement Income founder Ralph Stewart, Ian Perera from the New Zealand Society of Actuaries Retirement Income Interest Group, and NZ Super Fund chief executive Jo Townsend.

When asked what their thoughts were on asset management and allocation, and how to support a demographic that is older and growing older, Townsend said these days, most people at the point of retirement are likely to live 20 to 30 years.

This was a challenge when it came to risk appetite in retirement and having a more conservative mindset, she said.

“Whilst they still do need elements of growth in their portfolios, they might be very adverse to the volatility that can actually bring.”

The other thing about asset management and designing products for retirement, Townsend said, was that the decumulation phase was very different to the accumulation phase.

The decumulation phase is when you would be taking money out while the accumulation phase is when you're building up the money in your fund. 

During the accumulation phase, you could make a strong case for having a default product that represents a large group of people, she said.

“It becomes a much more nuanced product requirement in decumulation than it is in accumulation.”

Townsend said she was surprised when she first came to New Zealand and learned KiwiSaver did not have in-built decumulation products.

“This is a discussion that has been ongoing in Australia for quite a long time now and it’s a really difficult problem to solve, but certainly they have been tackling it,” Townsend said.

“A lot of that has been driven by regulatory change in order to get that happening but there are all sorts of potential things you can do from an asset management product perspective around things like trying to put floors in terms of volatility, or potentially trying to have a minimum level of income retirement.”

But this did cost money and could increase the complexity of trying to explain a product to somebody, she said.

“There’s sort of a trade off between not wanting to have that really high growth volatile outlook and still wanting to get some sort of growth over what might be a long time in retirement.”

Lack of knowledge

When asked by Stewart what the biggest threats were to New Zealand superannuation, Perera said the country had made good progress in recent years with KiwiSaver.

“We’ve got half a million KiwiSavers who will get to age 65 over the next 10 years. There are nearly 200,000 who are already at that age and we have not given them enough help to work out what to do with their KiwiSaver balances when they get to age 65,” Perera said.

“I think it’s going to be an issue if we don’t somehow give them the confidence to take advantage of the funds they’ve accumulated … That lack of knowledge and focus on education I’ve drawn out is a big issue for our entire system.”

KiwiSaver

A panel on KiwiSaver on Wednesday also discussed decumulation with RNZ money correspondent Susan Edmunds saying: “We give a lot of thought to putting money into KiwiSaver but we don’t help people a lot with bringing it out again.”

Kōura Wealth founder Rupert Carlyon said as providers, most of the focus goes into how to win customers.

“I mean KiwiSaver marketing spend for example, over the last three or four years has probably quadrupled where it was, which is an interesting stat around where our industry’s going.”

“We’re spending a lot of time focusing on getting them in the door. We’re doing all right probably when they’re in there but kind of nowhere near enough on education,” he said.

“I think the conversations that we as providers are having with our customers up front, it needs to change - even down to some of the life stage products that we see in the market.

“Making sure that we don’t stop anything at 65. Up front, all of the communications from our PDSs [Product Disclosure Statements] to when we join them need to be talked about. We’re setting you up through to 95, not through to 65."

"We don't have the annuity products yet here in New Zealand. I think until we see tax changes that's not going to happen because people don't want to get double taxed on the annuity out of those income products.

“I’ll be honest, with the KiwiSaver providers that we have at the moment, it’s going to be really hard to see the annuity. The only real path we’ve got is education and that needs to start up front," Carlyon said.

Maximised for the future

Townsend said people don’t really worry about retirement until it’s almost upon them.

By then, it could potentially be too late to benefit from the ability to make small additional contributions over a long term, Townsend said, and there was no real incentive for people early on to contribute more.

“I think the basic constructs are there. It’s about how they can potentially be maximised for the future.”

‘We’ve got a lot on our side’

Nolan brought up the anti-government protests in France. 

“If you look at what was behind that, it was basically, they lost control of their pension system. And they’re having trouble with their funding, their spending and they’ve got very high levels of public and private debt.”

“It’s a catastrophic situation you can end up in as a country. Now, we’re a long way from that in New Zealand.

"We’re very fortunate. Our system is much more coherent. It’s much more cost effective. We’ve got better demographics so we’ve got a lot on our side,” Nolan said.

“The concern is if we don’t get to grips with some of these issues now, in 10 years we’ll be where France is now.”

When asked about innovation and what could potentially be done to help solve some of the problems, Nolan said: “If you pull one part of the system, it’s going to create pressure elsewhere.”

“So if I had a magic wand and I could achieve one thing, it would actually be more about governance,” he said.

If the country had a political accord, this would sort out the relationships between different agencies and help sort out a clearer work plan, Nolan said.

But there were some immediate fixes that could be done, he said, such as trying to close some of the gaps, for example, the KiwiSaver gender gap.

“There might be things you could do around innovation and how we’re servicing the self-employed.”

In the political spotlight

Nolan said while New Zealand did not have a million people over 65 - it was coming soon and would be a big milestone.

“It’s going to have big implications and I just think we haven’t really grasped the need to think about when people are moving into that drawdown phase. The advice we’re going to be providing, it’s just going to be fundamentally important.”

This comes as a Financial Markets Authority report found that this year, KiwiSaver withdrawals by people 65 and over has decreased, with members choosing to draw down their funds gradually rather than take it out as a lump sum.

At the same conference, Finance Minister Nicola Willis said National would be going into next year’s election with a superannuation and savings policy that it believes addresses some challenges New Zealanders face.

As for Labour, KiwiSaver is unfinished business, its finance spokesperson Barbara Edmonds said.

While Labour wouldn’t be looking to lift the superannuation age, she said there were other settings that could be looked at.

Meanwhile New Zealand First leader Winston Peters announced a proposal to increase both employee and employer contributions to initially 8% and then later to 10%. KiwiSavers and employers would receive tax cuts to cover the increases, Peters said.