New Zealand needs to address retirement income issue

For immediate release

New Zealand needs a new cross-party accord to address retirement income issue

New Zealand needs a new cross-party accord to bring about the necessary policy and savings changes that can provide a comfortable retirement for all, says the Financial Services Council (FSC).

The FSC called for an accord in its submission to the retirement income policy review being conducted by the Commission for Financial Literacy and Retirement Income. Such reviews take place every three years and submissions to the current review closed last Friday (31 May).

“It has been 20 years since the signing of the 1993 Accord of Retirement Income Policies,” says FSC Chief Executive Peter Neilson. “There have been many significant changes since then which the FSC believes have created a need to renegotiate the accord with the parties represented in Parliament following next year’s General Election.”

New Zealanders’ life expectancy has increased significantly, says Neilson, and the cost to the taxpayer of more people receiving NZ Superannuation for longer will increase the cost of superannuation from 4 per cent to nearly 10 per cent of GDP later this century.

“We currently have 100,000 more people who are older than 65 in New Zealand than Statistics New Zealand projected back in the early 1990s. Over the next 20 years the baby boomers will become the retirees boom. In addition, people who are starting work today can expect to live for 30 years after reaching 65.

“We know that only 9 per cent of New Zealanders expect that NZ Superannuation alone (currently $357 per week after tax for a person on their own or $512 for a couple) will provide adequate income in retirement.

“While many New Zealanders have enrolled in KiwiSaver, most of us are still not saving enough to fund a comfortable retirement. Most KiwiSavers who are currently contributing are doing so at the 6 per cent level, which is insufficient to fund a comfortable retirement.”

Neilson says that many default KiwiSavers are invested in conservative funds. This is likely to result in much lower balances in those KiwiSaver accounts at retirement than if they had been invested in growth assets.

“We know that effective use of KiwiSaver could produce a pension for about half the economic cost of funding the same level of pension from taxation.”

The FSC is recommending updating the accord as a means of securing an enduring and equitable approach to retirement income for all New Zealanders, says Neilson.

“We are advocating that updating the accord will include addressing issues such as the affordability of KiwiSaver for the low paid, women - who on average spend more time out of paid employment, and marginal employers. One way of doing this is by potentially phasing in changes over a decade or more to make it more affordable.

“There is no doubt that we need to urgently address the issue of how we are going to fund our retirements and all political parties have a role to play in creating the right policy and social framework to support the changes that are needed in a sustainable way.

“New Zealanders need to know what they can expect from NZ Super and how much they need to save to achieve a comfortable retirement.”

The FSC has already provided several proposals for achieving the changes needed to help New Zealanders save for a comfortable retirement. These are outlined in its report “Pensions for the Twenty First Century: Retirement Income Security for Younger New Zealanders” which can be found at pensions report.

The full FSC submission to the Commission for Financial Literacy and Retirement Income’s review can be downloaded here retirement review submission.

ENDS

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