New Plan to Keep NZ Super, Continue Retirement at 65 and Double
Retirement Incomes
 
Main points of savings and investment industry proposals for a 21st century pensions system:
 
·         Keep NZ Super, continue the option to retire at 65 and double retirement incomes

·         A 10 year phase in of KiwiSaver Plus to lift contributions to 10% of income

·         Safeguards for the low-paid to ensure anyone who participates can retire at 65

·         A capital guarantee on KiwiSaver contributions

·         Group insurance in KiwiSaver Plus for death, sickness and  disability income protection

·         Call for cross-community conversation on contribution rates, timing, affordability and voluntary versus compulsory contributions

·         No changes to NZ Super for those in or close to retirement.
 
New Zealand’s savings and investment industry has today launched a major new report suggesting the country debate policy options which allow the country to keep NZ Super, be able to retire at 65 - and more than double the retirement incomes of those now aged under-40.
 
The Financial Services Council says the options arise from new research it has conducted over the past year. One of the most significant findings shows New Zealanders after reaching 65 are living on average 2 years longer each decade. While in the past people lived 15 to 20 years after retiring, this could now lift to 30 to 40 years for people being born this century.
 
This, together with larger numbers of New Zealand baby boomers retiring during the next two decades, means the country would be best  to debate introducing something better by building on its current New Zealand Superannuation (NZ Super) aged pension and KiwiSaver schemes.
 
In what the FSC’s chair and former Prime Minister, Dame Jenny Shipley, describes as a “compelling, challenging” report, the country’s investment leaders say the country should discuss a system where
 
·         universal entitlement to the taxpayer funded pay-as-you go (PAYGO) New Zealand Super will remain, where the age of eligibility will be increased as longevity increases, and where
 
·         more employees make larger contributions to an enhanced save as you go (SAYGO) KiwiSaver scheme, called KiwiSaver Plus.

KiwiSaver Plus

KiwiSaver Plus would involve
 
·         More people taking part in a scheme like KiwiSaver so that most employees and employers are contributing
 
·         Gradually lifting savings contribution rates over 10 years from the soon-to-be 3 % from employers and 3 % from employees.
 
One way of doing this would be to increase contributions by employers and employees until the combined amount reaches 10 % of wages.
 
The FSC is suggesting this is done gradually at
 
·         0.5 % a year of income from each of employer and employee over 10 years as the economy recovers – and wages are rising again - until the combined amount reaches 10 % of wages.
 
It says in most years when the economy is growing real wages rise by about 1 per cent a year to reflect productivity growth. This means contributions from employers and employees will come from real income growth and will not cut living standards.
 
For people currently not contributing to KiwiSaver the FSC suggests starting contributions from employers and employees at only 0.5% in the first year and increasing that amount each year. It suggests the rate for people already contributing to KiwiSaver not increase until the standard contribution rate is higher than their current one.
 
One of the issues for debate, on which the FSC does not make a recommendation at this stage, is whether those contributions should be voluntary or compulsory.
 
Saving an extra $4.10 a week, each year, for 10 years

It says the 0.5% extra saving a year requirement is about $4.10 extra saving a week, each year, for 10 years for someone employed who is on the median weekly income of $820 a week. It is less than the price of a good cup of coffee, less than half the $10.38 a week many households pay for a basic Sky television service subscription or a third of a $12 lotto ticket.

Retirement incomes double

For men on a median lifetime income turning 65 in 2061, after saving for 40 years, this would deliver a NZ Super and KiwiSaver Plus income of $42,016 a year, an extra $281 a week in retirement above NZ Super. For women it would deliver $32,897, an extra $106 a week.

The FSC suggests personal KiwiSaver Plus retirement savings be used from age 65 to purchase a fixed term pension equivalent to NZ Super  – even if the age of eligibility for NZ Super has extended beyond that. It would fill any gap between 65 and a time in the future when the age at which people qualify for NZ Super is likely to be extended as longevity increases. As the saver’s own pension, the fixed term pension could be taken to anywhere in the world.

In addition, the KiwiSaver Plus retirement savings above that required to buy a pension equivalent to NZ Super could be converted to a regularly-paid pension or be taken as a lump sum pay out to spend however they want.

Retirement top ups for women and the lower paid:

The FSC suggests the Government should commit to top up the retirement savings account of any participant in the scheme who does not have sufficient savings to purchase a pension equivalent to New Zealand Super from age 65 because , for example, their earnings were very low or they had spent extended time out of the workforce to raise a family.
 
It says this could not only help women who may have spent time outside the workforce it will also help anyone who has had very low earnings over their adult lives. It would also help someone who has had a bad investment experience with their savings close to retirement.

Securing retirement incomes of those under 40

The FSC says the proposal to keep NZ Super and introduce KiwiSaver Plus is aimed mainly at securing the retirement incomes of New Zealanders aged 40 or under who, if they worked in Australia, could retire with pensions more than double those likely to be available in New Zealand.

A critical new FSC research finding is that each decade 65 year-olds will live two years longer than the previous decade's 65 year-olds and this trend has been occurring for the past 50 years.

Applying this trend, medical and actuarial researchers say this indicates that 52 out of every 100 females and 44 out of every 100 males born in New Zealand in 2011 will live until they are 100 years old.

The length of time people in New Zealand can expect to live after reaching age 65 has nearly doubled in the past 100 years.

This longevity increase would require a 28% increase in current tax rates if the age of eligibility for NZ Super remains the same.

At the same time New Zealanders feel they need about $300 more a week than NZ Super is currently paying in order to live comfortably in retirement.
The FSC says its proposal recognises that today’s under 40-year-olds
 
• can be expected to live much longer after 65 than their grandparents;

• want to do more than their grandparents have been able to do in retirement;

• would like more flexibility as to when and where they can retire;

• believe they would need close to twice the current level of New Zealand Superannuation (NZS) to live comfortably in retirement;

• are likely to have fewer children than their parents or grandparents;

• could double their retirement income by moving to Australia.
 
Mr Neilson says: “As a country we need to deliver an affordable plan that preserves older New Zealanders’ rights to New Zealand Super but offers younger New Zealanders and future generations:
 
• the possibility of achieving an income in retirement close to two times the current level of NZS, providing incomes in today’s dollars of about $632 per week for a single person living alone or about $845 per week for a couple living together, with the income indexed to wage growth in the future
 
• the option to retire on an equivalent income to that provided by NZS at 65 (with the fixed term pension increasing each year in line with wages as does the NZ Super).”
 
The FSC is also advancing options which could see savings contributions increased to insure participants against premature death, or provide income protection in the case of sickness or permanent disability up to two times their annual income, and a capital guarantee on the value of savings contributions at 65 to protect people from losing their savings near to the time they plan to retire.
 
Compelling case for debate
 
Dame Jenny says the FSC it is putting forward its KiwiSaver Plus plan for public and policy maker discussion.
 
“This work by Financial Services Council into young New Zealanders’ expectations and aspirations concerning retirement, along with technical research into longevity assumptions and the funding required to support the future retired, makes interesting and compelling reading. I think they will challenge your assumptions as they did mine.
 
“The FSC hopes that this report will contribute to a new conversation among all the stakeholders involved in the future planning, funding and managing of retirement for the under 40s and for that generation themselves to take a position in what would work for them.
 
“We urge all stakeholders and political leaders current and future to see this as both an opportunity and an obligation: we hope that new partnerships can emerge where public policy, private enterprise and personal endeavour converge and conclusions can be drawn.
 
“We hope that the public policy leaders both political and public service will do their own research and either validate or dismiss our projections in order for future commentary to be accurate and fully informed. We offer this report in good faith as a starting point for one of the most critical conversations of our time.”
 
All of the proposed options for the new retirement savings system are in summary and full reports at www.fsc.orgnz
 
ENDS

© Scoop Media