Decumulation Revisited

17/5/2019

This is the year for another Retirement Income Policy Review, carried out three-yearly by the Commission for Financial Capability (as successor to the Retirement Commission it inherits this requirement). At the end of April, I took part in a “Summit” hosted by the Auckland Retirement Policy and Research Centre which aimed to contribute to this review, which is due to report by the end of this year[1].

The previous 2016 Retirement Income Policy Review report called for more work on decumulation tools and mechanisms, but along with other recommendations of this review, not a lot appears to have been done. About three years ago I posted two pieces on decumulation –looking at what it means in relation to retirement income planning and the options available. I think that the term “decumulation” has become better understood since that time. So perhaps it is time for a revisit.

Especially as one of the terms of reference of the 2019 Retirement Income Policy Review is –

An assessment of decumulation of retirement savings and other assets, including how the Government can ensure New Zealanders make the most of their money in the decumulation stage.

How does decumulation fit into the policy system?

The “running down” or decumulation of savings and assets has always been an option for increasing retirement incomes, assuming people have them and are willing to use them. And whether they have been able to accumulate assets depends on individual life experiences, such as work careers and home ownership, and also on attitudes and expectations.

Many people die with money in the bank. This may reflect an intentional bequest motive, a “rainy day” contingency plan, or inertia. But, as an interviewee once remarked to me “there are no roof racks on hearses”!

There is certainly evidence that many older people need to supplement NZ Superannuation to have a comfortable standard of living. Decumulation (along with continuing in paid work) is a way of achieving this.

There are many ways in which government policy can either facilitate or produce barriers for decumulation. But, up to now it has not come explicitly into the policy sphere, except in the form of income and asset testing for residential care. There have been questions about how additional income from decumulation might affect access to income-tested benefits. We await with interest to see what the review will come up with and what the governmental response will be. One possibility would be to apply asset and income testing to home care services – as is done for residential care.

What are the current decumulation options?

  1. Invest KiwiSaver lump sums, when schemes mature at age 65, and other savings. Use the returns for current income needs and leave the capital for a “rainy-day” or for bequest.
  2. Draw down capital and accumulated interest regularly, based on a target income which you think you need and will need in the future But it may be hard to calculate how to make this last a lifetime as no one knows for sure when they will die.
  3. Purchase a life annuity, providing an income guarantee until death[2]. There is such a scheme in NZ – Lifetime Retirement Income (https://www.lifetimeincome.co.nz/). Depending on how much you invest in this scheme you receive a fortnightly payment insured to continue for the rest of your life. It is possible to make lump sum withdrawals, but this will reduce the income received.
  4. Trade-down to a smaller/less expensive dwelling; or move into a retirement village where greater certainty about housing costs are offset by a significant charge on home equity.
  5. Use a commercial equity release scheme, mainly in the form of reverse mortgages with compounding interest on released capital loans. This option is offered in NZ by Heartland Bank and other banks. The Heartland option guarantees lifetime occupancy of your home; a no negative equity guarantee and there is no requirement to make any repayment until the end of the loan (https://www.heartland.co.nz/reverse-mortgage). Customers can take out lump sums or regular monthly advances from their cash reserve. The interest rate charged on the loan is variable and will change from time to time. At present the rate is 8%. This is applied as compound interest, so over several years the debt will increase accordingly.

[1] In Auckland I did not speak in detail on decumulation, I was outlining the retirement income eco-system which I blogged about late last year. But decumulation did come up.

 

[2] In the UK there was a policy which required a proportion of retirement scheme lump sums be used to purchase annuities (this is now been withdrawn).

 

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Better Later Life – He Oranga Kaumātua

3/5/19

As I foreshadowed in my previous blog, the Seniors’ Minister Tracey Martin released a discussion document in Auckland on 12th April and opened consultation on a new ageing strategy. There is much to admire in this document and very little to disagree with. I am sure,it will stimulate a lot of discussion and comment.

One feature is the extensive use of Te Reo Maori, with the Maori titles of sub-sections coming before the English, for example Te take me whakahou – The case for change. Along with National Programme news, this provides a gentle nudge for all of us to become more familiar with an official language of Aotearoa/New Zealand. Spread throughout are meaningful quotes and sayings in a variety of languages and scripts, such as –

ਚੰਗੀ ਮੈਟ ਚਾਹੋ ਤਾਂ ਬੁੱਢੇ ਨੂੰ ਪੁੱਛਣ ਜਾਓ.

Need a good piece of advice? Consult an old person.

In her introduction, the Minister notes that the document reflects submissions made by many people and groups in 2018 on what a new strategy for an ageing population should cover. She emphasises the need to see beyond the tendency to look at the ageing population only in terms of what it will cost and recognises the role of all, from central and local government to families, whānau and individuals, working together. These holistic views permeate the document, referring to other policy strategies already in place. I believe that the Healthy Ageing Strategy, 2016 will be a valuable source, with its life-course approach.

“I want this strategy to be different, looking more broadly at how people can have better later lives and also recognising the significant contribution older people have made and continue to make to New Zealand.”

Brilliant!  The full document is available at http://superseniors.msd.govt.nz/about-superseniors/ageing-population/better-later-life-report/index.html. Here is a brief outline with my comments.

Another accolade from me is the acknowledgement of difference and diversity throughout, starting with the definitions –

“Older people” is used to mean people aged 65+ but recognises that people
age differently and have different aspirations and needs.”

The next generation of older people, now aged 50-64, is recognised and “older worker” is used to mean people aged 50+ working or seeking work. I was especially pleased to see a clear statement that New Zealand does not have a retirement age. It irritates me intensely when “retirement age” is used in the media and elsewhere, suggesting that retirement is compulsory (or universally expected) at age 65.

After stating its Vision and Guiding Principles (diversity, value, safety), the document sets out five key areas for action-

 

Consistent with the emphasis on diversity, the document frequency calls for wider options for older people – in housing, employment, transport and ways of saving for later life. Forward-looking considerations are noted, calling for reaction. These include the prospect of higher levels of poverty among older people, especially as a result of falling levels of home ownership; higher insurance and rating costs; the need for workforce change with higher participation by older people; higher debt levels among older people; and the effects of climate change. Looking broadly, we need to recognise the need for adjustment to change, which applies to all generations and all areas of life.

After each section -topic by topic – there is a text box “What we want to achieve”, for example –

 

“People have equitable access to the social services they need to support them to live well. “

This is followed by “What needs to happen”. Most of the actions specified are aspirational and general, without details of implementation. This, the document states, will come in an Action Plan to be developed over the next two years (hopefully some action will come sooner). For example –

“Encourage people to stay as fit and healthy as they can throughout their lives.”

 

“Build recognition of the importance of cultural diversity in the design and provision of social services. “

As I read the document, I mentally applied ticks of approval many of the statements, perhaps because they reflected my own propensities and the outcomes of my research, especially in the areas of employment and housing. I very much applaud the points on p.26, headed “Paid work and Business Owners”, about providing opportunities for upskilling and for older entrepreneurship. In housing, the emphasis is on remaining in the community, which will have numerous advantages –

“Ageing in the community safely and independently can improve older people’s physical and mental health and wellbeing, and social connectedness. It also reduces the chances and period of time that older people are in residential care services.”

Just a few requests – I would like to see more about prevention in a discussion of elder abuse. Only a very brief mention under safety (p.39). I think there should be more emphasis on walking and pedestrian safety. Also, when showing figures for employment of older people, there should be a breakdown by age, 65 plus is not enough.

Submission are due by June 3 – only a month away. I had better get on with mine!

 

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A good year for policy?

Judith Davey
18/4/19

A new strategy for an ageing population
In the April edition of the SuperSeniors Newsletter, the Minister for Seniors, Tracey Martin, talks about the new draft strategy for an ageing population. – Better Later Life – He Oranga Kaumatua 2019 to 2034. This was released in draft in Auckland on 12 April and now consultation will begin.

I found several things interesting about this announcement. The “Positive Ageing” title of the previous strategy has been dropped. In fact “strategy” does not appear in the new title. It has a 15-year time frame. The five major themes are announced – financial security, health, housing, safety, and social connections and the way our communities are physically built so that they are accessible to all people. The emphasis on diversity and difference should be applauded. But how do we react to the phrase – “Better Later Life 2019-2034 is a new way forward and will help inform how we look after our older people for the next 15 years and beyond”? I am looking forward to studying the full text and will be encouraging submissions. These will be reviewed, and the new strategy finalised and launched later this year. Then implementation will begin, so there is plenty to do.

Well being as the focus for the 2019 Budget
On Thursday 30th May, the Minister of Finance, Grant Robertson will deliver the government’s 2019 Budget. This has been heralded as the first “Wellbeing Budget “in the world. What does it mean for New Zealand? And, especially for older New Zealanders?

The idea builds on the Living Standards Framework (LSF) designed by Treasury, developed over many years and informed by public feedback from surveys and submissions; also consultation with local and overseas experts, drawing on the work of the Organisation for Economic Co-operation and Development (OECD). This framework contains a wide range of “wellbeing indicators” from rates of unemployment/employment to housing conditions and environmental quality and will track how they vary over time, between different population groups, and by regions. No single set of indicators can capture absolutely everything that matters for every person, family, whānau and community, so the “dashboard” will be regularly updated.

In December 2018, the Minister’s Budget Policy Statement was published, foreshadowing the main priorities for the 2019 Budget. He said the Government wanted to look beyond a purely economic and fiscal viewpoint and traditional economic measures – such as Gross Domestic Product (GDP) – to a wider set of indicators of wellbeing when deciding on the government’s investment and funding decisions. So, it will produce the baseline for strategies which look to the future, embedding wellbeing in public policy. The stated priorities are;

  • transitioning to a sustainable and low-emissions economy;
  • boosting innovation, and social and economic opportunities in a digital age;
  • lifting Māori and Pacific incomes, skills and opportunities;
  • reducing child poverty, improving child wellbeing and addressing family violence;
  • supporting mental wellbeing, with a special focus on under 24-year-olds.

Quite a few objectives bound up in those statements!

The idea is that indictors will be measured to show progress (or otherwise) towards these objectives, which are all relevant and topical issues, and hard to disagree with. But there is bound to be criticism from sections of the community whose interests appear to have been left out or who think that other issues should be given prominence – perhaps “looking after our older people” which is a priority I noted above, by another part of government.

There is agreement that the ultimate goal of public policy is to improve wellbeing for all citizens. The wellbeing approach to policy is intended to “identify the actions we believe will make the greatest contribution to improving the intergenerational wellbeing of New Zealanders”. But, as Professor Arthur Grimes said in his commentary, “the proof of the pudding will be in the eating. The question will be whether it will lead to substantive change, or is it just cosmetic?”

We already know, from Statistics New Zealand’s General Social Survey (GSS), that older people score highly on this agency’s measures of wellbeing. People 65 plus have the highest scores for overall life satisfaction and feelings that life is worthwhile, according to GSS data. People 75 plus have the lowest rates for feeling lonely. We still await the 2018 GSS results, which we will have to put against the LSF findings. It is looking to be an interesting year for policy, and we need to keep our eyes and ears primed.

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Safety for older workers

Judith Davey
5 April 2019

Way back in 2003, Justine Cornwall and I prepared a scoping paper for the Accident Compensation Commission – The Implications of an Ageing Population for the ACC – through the New Zealand Institute for Research on Ageing.

Our findings showed that, overwhelmingly, the majority of accidents and injuries to people over 65 years occur in and around the house, related to the greater time that older people spend in their home environments. For example, in the 75+ age group 78% of men’s injuries and 82% of women’s occurred in and around the home, which includes garages and gardens.

But with larger numbers of people 65 plus in paid employment, we reported, there had been an upward trend in the number and cost of work-related claims for older men and women.  We concluded that population ageing would bring higher demands on the ACC budget.

The same message appeared in a recent study from the University of Otago. This said that, between 2009 and 2013, more than one in five accepted ACC claims for traumatic work injuries were made by workers aged 55 to 79. These researchers, like us, a decade earlier, foretold that this “significant burden” on the ACC was certain to grow[1] . But there is some doubt about these high rates. ACC claim rates per 1000 working population in 2016 were highest for the 20-29 age group. Information from a recent Tasmanian report[2] concluded – “It is a common but incorrect belief that older workers suffer more injuries than younger workers”. Moreover, ACC data on the causes of accidents at work show the same results for older and younger workers – mainly falls and lifting.

Despite this controversy it is certainly true that more needs to be done to keep older employees safe from work-related injuries. And any help for this group will make the workplace safer and healthier for all workers.

Key Risk Factors
Most of these are easily identified –

Bone strength: as we age, trips and falls can become more common and more likely to result in serious injury.

Muscle strength: our muscle strength and elasticity may decline, and muscles are slower to respond. This may increase the risk of injury.

Vision and hearing: may deteriorate with age, but this can be offset by using hearing aids and glasses.

There is plenty of advice for employers for action in these areas, but there are wider considerations. It is time to set aside stereotypes and negative attitudes based on myths about older workers’ capabilities, and the perceptions that older workers are frail, unreliable and incapable of working effectively and safely (see the illustration in my last blog). Older people are not all alike. Productivity is individual and varies more within an age group than between age groups.

What needs to be done?

Safety professionals in workplaces need keep in mind age-related trends, while avoiding simple stereotypes about older workers.[3] This means checking workers as they age to find out what kinds of support they need to continue to perform their jobs effectively. Can work roles be shaped to better suit people’s changing abilities and needs? This fits in with my conclusion that both jobs and workers need to adjust as the labour force ages.

Employers – can provide mechanical devices and power tools for lifting and moving; set out guidelines and training for lifting, bending and stretching. They can ensure proper lighting and offer exercise or stretch breaks.

Workers – can make sure they use the equipment provided; use ladders properly and be cautious on steps; stretch before, during and after work. Minimise squatting, bending, kneeling and stooping.

Generations working together

I could go on, but one final piece of advice offered to employers, which appealed to me, is to get people of different ages to work together (see my blog on mixed age workforces). It could especially be useful where new technology is involved. Pairing the employees who have institutional knowledge with those who have new eyes to see how things could be done differently can be a powerful combination.

Summing up work performance and age

Depending on the nature of the work, job performance may improve, remain constant or decline with age. But in almost all cases, training, changes and adaptation within the work environment can improve safety and performance and offset the effects of physical and mental changes related to ageing.

 

[1] Age-related patterns in work-related injury claims from older New Zealanders, 2009–2013: Implications of injury for an aging workforce. https://www.otago.ac.nz/news/news/otago668569.html

[2] Australian Human Rights Commission (2018) Employing Older Workers: Research Report. https://www.humanrights.gov.au/sites/default/files/document/publication/AHRI_AHRC_EmployingOlderWorkers_Report_2018.pdf

[3] https://www.safetyandhealthmagazine.com/articles/16139-safe-at-any-age

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Ageing and the Future of Work

Judith Davey 22/3/19

In early March I attended a seminar in Wellington given by Professor Peter Gahan, Professor of Management at the University of Melbourne. It was entitled “Disruptive technologies: what might these mean for the future of work and the future of work-related policy?” The question immediately in the minds of most of the audience was probably “Are robots taking our jobs? “

This was certainly relevant, but Prof. Gahan assured us that technological change creates more jobs than it destroys; that for most of us, new technology is transformative, rather than disruptive; but that technology alters the bundle of skills, tasks and responsibilities that make up a job.

The growth sectors in employment are likely to include –
• Infrastructure & urban development
• Environment and sustainability
• Technology, research and engineering
• Health and human services.

What caught my attention was Prof Gahan’s identification of demography as a major factor in the future of work and the fact that he was giving another presentation the next day in Auckland entitled “Everyone’s future: Planning for an ageing workforce”. So, as soon as I could, I found the link to this presentation.

Prof Gahan’s main messages were that social attitudes are changing, and workforce diversity is increasing in many ways, especially by age as I have emphasised in earlier blogs. “Generational diversity”, as Prof Gahan terms is, has both pros and cons. Older people have different ways of working, different expectations about what work will deliver and different life cycle demands.

These could lead to Intergenerational conflict (a topic I will address one of these days). But, on the pro side, older workers can offer different strengths and skill sets; they can share experience and knowledge and transfer skills. With a diverse and multi-generational workforce there is the potential for better decision-making, for creativity and innovation. These are things we know from local research, but it was good to hear it from an expert in management.

So, some of the management mind-sets which are needed in the future workplace include a re-thinking of what people of different ages can offer – “(ability in) coding is not everything”; an emphasis on upskilling and job crafting so that there can be transferability instead of redundancy; and the thoughtful negotiation of change and transition.

But working against the potential benefits of older workers and mixed age workforces are ingrained beliefs and prejudices. Those relating to older workers were summed up in an illustration:

Where groups are attributed particular characteristics, irrespective of individual differences among members of that group, this leads to stereotypes, hence to prejudice and hence to discrimination. Prof.Gahan gave several examples of studies which supported this analysis. In some cases, selection criteria led to bias in assessing job candidates, which may be unconscious. It may depend on who is making the selection – age differences between the recruiter and the job candidate. Diversity in the interview panel can reduce bias. And it is also possible that ageist beliefs can be internalised by older workers themselves – leading to self-discrimination – despite any evidence supporting them.

As I said, these findings are not new and have been presented in local research. But it was good to have them promulgated by a Professor of Management, from Australia no less, and to an audience of government officials and policy-makers.

 

[1] Both seminars were sponsored by the Australia-New Zealand School of Government and the PPTs can be found at https://www.anzsog.edu.au/resource-library/resources-tlss

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Pointers for Policy in an Ageing New Zealand

Judith A. Davey
8/3/19

Recently I was in Wanaka, invited there to give the first of their four sessions entitled “Living in the Third Age: Navigating a changing demographic”, which continue through March. My title was as above – “Pointers for Policy in an Ageing New Zealand”. It was extremely well organised and attended by almost 200 people, in the hall of a modern church not far from the lake. After the size of the audience – well-informed and engaged – I was most impressed with the up-to-date technology which was available, all of which worked without a hitch.

My aim was to set out some of the policy challenges associated with population ageing and to stimulate discussion. There was a very active question and answer question after my talk (and morning tea). Here are some of the issues and questions which I posed – many arising out of my research – and which figured in the subsequent discussion.

I put out four major policy challenges –

1. Ensuring adequate retirement incomes.
This not only centred on the sustainability of NZ Superannuation (important though that is), but also the recognition that this is only one part of the “eco-system” which I outlined in an earlier blog (September 2018). There are other policies which contribute to the adequacy of NZS – Kiwi Saver, free or subsidised health services, the Accommodation Supplement, Super Gold Card, Winter Energy Payment, Total Mobility Scheme and so on.

Then there are ways in which people can contribute to the self-funding of their retirement incomes – through their own savings and earnings and mobilising capital from their housing by downsizing and equity release. I asked whether, in the future as the NZS demand grows, we might be called upon draw on our own resources to a greater extent – “decumulating” assets which we have accumulated/saved through life.

2. Support for Ageing in Place.
I have frequently tried to emphasise that, in the future, we will see very much higher numbers of very old people, the majority of them women, living alone in mainstream housing in the community and in need of supportive services. 85 plus is the fastest-growing age group and over 80% live in the community; 1/3 of the men and 2/3 of the women live alone. The majority require some supportive services, as disability is high in this age group. This support comes from a range of sources, from family, neighbors and friends, from voluntary organisations, commercial firms, local, regional and central government agencies. How can these work together and how will responsibility be shared?

3. The implications of an ageing labour force.
We will soon be in the situation where more people are leaving the workforce than moving into it. Emerging labour and skill shortages bring concerns about productivity and economic growth (see series of blogs in mid 2015). More and more people aged 65 and older remain in paid work, which has benefits for themselves (supplementing other sources of retirement income), but also for government (raising the tax base to pay for costs related to ageing); for employers, and hence for the economy as a whole.

The challenge is to adapt jobs to make them more attractive and more appropriate for older people and, at the same time, to keep up the functional capacity of older workers through (re)training and health promotion. There needs to be adjustment on both sides – jobs and workers.

4. Promoting Positive/Active Ageing.
In 2007, Alan Walker said – “Active ageing should be a comprehensive strategy to maximise participation and well-being as people age. It should operate simultaneously at the individual (lifestyle), organisational (management) and societal (policy) levels and at all stages of the life course.”

This is another challenge – trying to get different policy levels and different sectors (including individual action) to work together for the benefit of all. But what can government do? I concluded with a list –

  • Maximise the potential of older workers
  • Encourage flexible retirement options
  • Redistribute public health resources from cure to prevention across the life course
  • Get on with long-term planning for health service delivery – target chronic conditions
  • Have a stable retirement income system
  • Enhance measures to support ageing in place
  • Challenge and remove ageism/age barriers.
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Ideas on a revision of Positive Ageing Strategy

Judith Davey

22/02/2019

In January the Office for Seniors (OFS) published a summary of the submissions that they had received in the second half of 2018, with the title “Developing a new strategy to prepare for an ageing population”. These were submissions in response to a discussion document of the same name, released in June, which looked at changes since the 2001 Positive Ageing Strategy 2001 was published.

There were 469 submissions in all, of which 367 were from individuals, couples or anonymously; 102 submissions were from organisations, whānau and groups. The latter are listed in the 2019 document, but there is no list of the other group of submitters (as far as I can see on the OFS web site). Ideas and recommendations from the submissions will be considered as the OFS develops the draft strategy for an ageing population. (It is not suggested that “Positive Ageing Strategy II” will be its title).

Major themes

Because many submissions covered several areas, the major themes were identified by the number of times the topic was mentioned. I am looking at the (10 ) main themes and, very briefly commenting on what seemed to be the main issues which submitters have raised.

Housing clearly was the dominant theme with 426 mentions. The main concerns were not enough housing options for older people and not enough appropriate housing. There were special mentions of issues for renters – in terms of insecurity and affordability. Declining home ownership rates were seen as a crucial trend. And there were some concerns about retirement villages.

Health came next, in terms of number of mentions – 386. The cost of services, especially those which do not attract subsidies for older people (dental, spectacles) led the list of concerns along with access to services and long waiting times. There were calls for free health checks and more preventive services. There was also concern about the quality of residential care and the availability of carers – what should be the role of family carers?

Third came Financial Security, with 323 mentions. There was a wide variety of mainly familiar concerns, mostly around NZ Superannuation – its adequacy in relation to a rising cost of living (should it be a Living Wage?). Should there be targeted add-on benefits for food etc.? Some submitters considered entitlement to NZS was unfair for people in particular circumstances – again well-rehearsed arguments. A newer point was a call to government to explore the availability of annuities.

Work
– both paid and unpaid – received 240 mentions, noting that this was linked to both financial security and health. There were calls for better valuing of older workers and volunteers. Points about the need to challenge stereotypes and ageing; about the provision of flexible hours and conditions and retraining for older people have frequently been raised (including in this blog). I liked the idea of the IRD providing special help for older people who are likely to have income from several sources.

Social connection and participation came next, with 213 mentions. This centered around loneliness, with calls for more community and intergenerational programmes; to remove barriers to life-long education. Spirituality came under this heading.

Transport came sixth, with 189 mentions. The common themes of affordability and access predominate, with special mention of the impact of losing driving ability. Safety came in here, especially for older people on footpaths. (Safety as a separate theme gained only 62 mentions, mainly regarding elder abuse, scams and crime generally).

Technology in relation to older people has not received a lot of attention, gaining 135 mentions. Technology has both benefits and negatives for older people, who may have limited capability and access in this area. Where agencies offer only on-line access to their services this can lead to deprivation and isolation.

Attitudes (122 mentions) was a feature of the original Positive Ageing Strategy. These include both public attitudes (including media depictions) which may be patronising or offensive and which should rather be steered towards value and respect for older people. But the attitudes of older people themselves may not always be positive. The important point is to recognise diversity, for example to value the role of kaumatua and older people from other cultures.

Ageing and retirement (80 mentions) is surprisingly low (to me) on this list. Submitters saw the concept of retirement as negative and out-of-date, as do I. But the comments mainly centred of planning for later life and the intention not to stop contributing. The emphasis should be on life stages and how they are changing.

I wonder if my readers found anything surprising about these results.


[1] The scope of a new strategy and governance theme was in the top 10 most mentioned themes, with 150 mentions. I have not covered this theme in my blog.

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