2019 Review of Retirement Income Policy
The review’s terms of reference make several references to KiwiSaver. Given the growing number of older people and longer lives, KiwiSaver is (and will be) an important part of retirement income plans.
The review was asked to assess what impact KiwiSaver (KS) would have on retirement income policies, along with the public’s perception and understanding of KiwiSaver fees, their levels and types and the range of KiwiSaver funds available.
Some light in these issues comes from a survey carried out by the Commission for Financial Capability (CFFC) in April 2019. This included a sample of 2000 people and asked them the reasons why they were not in KS. The oldest age group covered was 50-65 – people coming up to the, then, age cut-off (65) for KS membership. The answers for this age group were –
Have other savings/investments that will secure a comfortable retirement: 28.9%*
Can’t afford it: 24.5%*
Afraid Government will change the rules to the disadvantage of KiwiSaver members: 13.3%
Fees are too high: 6.4%
People aged 50-65 gave the highest percentages for these four reasons. The reasons marked * were the leading ones for all age groups, excluding people who had no income or who had never been employed.
People in younger age groups were more likely to say that they didn’t feel comfortable with the risk inherent in KS. Overall a quarter of the respondents had some fears about the future of the scheme and the risks involved. And 20%, mainly in the younger age groups, felt that they did not know enough about KS.
2019 Changes
Ahead of the outcomes of the review, some changes to KS, which affect older people, came into effect on July 1th. From this date people aged 60 plus became eligible to join or to continue in KS, but employer contributions were not compulsory for them (although it appears the majority of employers are making these contributions). People who join KS aged between 60 and 65 are no longer locked into the scheme for five years but can still withdraw their funds at 65.[1] These changes, and other commentaries on the policy review, recognise growing paid workforce participation by people aged 65 plus.
Choices to make when KS schemes mature
People reaching age 65 can now decide whether to take their KS lump sum then and reinvest elsewhere or remain in the scheme and continue to contribute to increase their final draw down. The details of post-65 arrangements will vary by KS provider.
“Smart Investor” (https://smartinvestor.sorted.org.nz/) compares the percentage costs between KiwiSaver and other managed funds
Type of scheme KiwiSaver highest Other managed funds highest
Conservative 1.65% 2.43%
Balanced 2.60% 3.49%
Growth 2.23% 4.36%
This may be a rough and generalised comparison, but it appears to show that KS schemes have lower costs than other managed funds, and, thus, there are advantages for older people to remain in KS after age 65. The commentators suggest that the over-65s had been stuck with higher-priced options by being excluded from KiwiSaver (depending on the individual fund chosen).
Prospects for Retirement Incomes
At the Retirement Policy Research Centre’s “Summit” in Auckland in April, as well as the contributors I have quoted from above, Alex McKenzie from the MSD gave his views on present and future prospects. [2]
He concluded that older New Zealanders are currently doing relatively well, with low rates of income poverty and material hardship relative to other age groups; high rates of home ownership; and a growing economic contribution (as workers, volunteers, taxpayers, investors and consumers). KS is an excellent mechanism for saving, but its impact on future retirement incomes is uncertain. Those that will really need it are probably less likely to be saving, or not saving sufficient.
He pointed out emerging trends that point towards a future with an increasing number of older people who may not be doing so well. Trends point towards a future where the rate of income poverty and material hardship amongst older New Zealanders may be higher than they are now, with the great majority very dependent on NZS and other government transfers for their income, especially if they are not part of KS schemes.
People now in their 50s and early 60s experiencing poor health, financial hardship, poor or inappropriate housing and social isolation, have poor prospects for their older years. He suggests that housing will be a key driver. Those without a mortgage-free home will face an increased likelihood of having an inadequate income (after housing costs). People now aged 45 to 64, living on their own, have the second highest rate of income poverty after sole parents. This percentage has grown from 10% in 1988 to 23% in the early 2000s and is now 29%.
This all suggests that more and more people will need to work beyond pension age, despite a number of barriers, including negative attitudes from some employers and others and the possibility of increasing health issues. What are the implications for the role of KiwiSaver?
[1] Troy Churton – Ageing workers, workplace participation and KiwiSaver, RPRC PPI Summit: 2019 Retirement Income Policy Review and You, proceedings.
[2] Older New Zealanders: Some Emerging Trends Alex McKenzie Ministry of Social Development RPRC Summit: The 2019 Retirement Income Policy Review & You 26 April 2019
On Research 