I have listed the various ways in which government policy in New Zealand contributes to retirement income adequacy – led by NZ Superannuation and Kiwi Saver, but also including various health benefits, the Accommodation Supplement, Super Gold Card and Winter Energy grants. In my last blog I also looked at ways in which people can supplement their incomes in retirement through self-funding and decumulation. However, there is a third set of factors which influence the retirement income system – social trends and attitudes. These can have an effect on government policy through their electoral power and also influence individual behaviour, by either encouraging or discouraging the take-up of various decumulation options. How might these operate?
We are often told about how the baby boom generation have higher expectations of their lifestyles and access to services in their later lives, compared to previous generations. In earlier decades there was an assumption that people would have to manage on much reduced incomes in retirement and get used to a lower standard of living. Now the periodicals and websites aimed at older people are full of advertising for cruises and overseas tours and people are encouraged to ask/demand of their doctors the latest remedies and medications (which they may have seen on TV ads or on the internet). “Make do” seems to have gone out with the World War Two cohort.
Entitlement to government support
A very common response to any suggestion of raising the age for NZ Superannuation is the cry of entitlement. “We have paid taxes for all our lives so now we deserve it.” This attitude has had a strong effect on government policies as elections loom, even though most countries to which NZ compares itself have already raised the pension age or are planning to do this, driven by financial pressures. A strong feeling of entitlement and the expectation that the government must provide, in income and in other areas, can also affect the propensity to save for retirement.
A preference for home ownership
The desire to own houses has been described as being “ingrained in the national psyche”. It has been seen as the path to responsible citizenship. In 1950 Prime Minister Holland is reported as saying, “The Government has great faith in the social value of home ownership…it promotes initiative, self-reliance, thrift and other good qualities which go to make up the strength of the nation.”
This may explain the stigma which tends to be associated with renting and perhaps the fact that renting in New Zealand is insecure compared to the situation in European countries.
The report of the recently released report of the Welfare Expert Advisory Group of the Ministry of Social Development promotes home ownership as a way of moving out of poverty. But the rates are falling, from a peak of 74% in 1991 to an estimated 65% now. Falling home ownership rates will have an impact on the adequacy of NZ Superannuation, and rising rental rates (mentioned in my blog of February 2018) are already putting pressure on the Accommodation Supplement.
Attitudes towards inheritance
People are living longer, and later life health and residential care costs are growing. There is some evidence that the wish to leave money to the next generation may be lessening, but it is still strong for many people. While some older people are adopting the SKI principle -spending the kids’ inheritance and taking that cruise/buying a new car – others are depriving themselves in order to leave bequests. And “inheritance impatience” is a motive for the financial abuse of older people – “I am going to inherit, so give it to me now!”
Helping out children in their own lifetimes – for house deposits, tertiary education, or assistance in emergencies – has always been practiced by older people and can be a source of happiness and wellbeing for all concerned. Thinking about increased longevity, those receiving bequests may well be into their 60s themselves and perhaps inheritance can become the next generation’s retirement lump sums.
Extending working life
Most New Zealander now realise that there is no “retirement age” here; no compulsory retirement anymore. There is no work test for NZ Superannuation and employment conditions have become more flexible. More and more people aged 65 plus are in some level of paid employment. What is needed is more adaptation to ageing in the workforce, on the part of both workers and employers. Another trend, which I am researching at present, is increasing numbers of older people starting their own businesses – the possibilities are endless.
All these trends and attitudes have political implications and will resonate with politicians when policy responses to ageing are being considered.