Otago Daily Times
Crisis to burden preretirees, commissioner warns
AUCKLAND: The Retirement Commissioner is worried about the financial impact of Covid19 on preretirees and wants the Government to consider upping the financial incentives to put more into KiwiSaver.
A global review of retirement income systems by actuarial consultants Mercer gave New Zealand’s system a B rating and warned the economic impact of Covid19 would heighten the financial pressures many retirees faced.
Mercer senior partner David Knox, the study’s lead author, said the recession caused by the global health crisis had led to reduced pension contributions, lower investment returns and higher government debt in most countries.
‘‘Inevitably, this will impact future pensions, meaning some people will have to work longer while others will have to settle for a lower standard of living in retirement.
‘‘It is critical that governments reflect on the strengths and weaknesses of their systems to ensure better longterm outcomes for retirees.’’
Retirement Commissioner Jane Wrightson, who took up the role in February — just six weeks before New Zealand’s lockdown, shared that concern.
‘‘Absolutely it is a clear and present danger postCovid, no question. The whole industry and big chunks of government are worried about exactly the same thing.’’
Ms Wrightson said the impact from Covid19 in New Zealand was largely on preretirees.
‘‘Retirees of course have seen their investment or savings balances go down and the low or nointerest environment certainly doesn’t help. That will be eating into their capital a lot faster than they predicted.’’
However, research Ms Wrightson’s Commission for Financial Capability undertook during the first lockdown showed that cohort was one of the most comfortable at present.
‘‘But the preretirees and the millennials have to think very hard now. The hardest thing to think about is longterm saving — this is going to take the country a long time to get over.’’
New Zealand’s government debt levels have spiked with its Covid19 response and are expected to remain high for years to come, prompting some to call for the age of eligibility to rise to make the cost of superannuation more affordable.
Prime Minister Jacinda Ardern has ruled out raising the age, but there are other tweaks that could be made to trim the cost.
Ms Wrightson said while Covid19’s economic effect on preretirees was probably not top of mind for the new government, affordability of New Zealand Superannuation likely would be.
She said there was not enough data or analysis to back up the kneejerk calls to raise the age of eligibility.
‘‘That is such a big policy step, you have to have a very reasoned and good analytical assessment of the situation and that is what we intend to do over the next year.
‘‘I want to properly evaluate that argument.’’
Ms Wrightson had just released a mission statement defining the purpose of New Zealand’s retirement income system — the first time that had been done.
The mission statement was formed using an advisory group of academics and policy specialists.
It stated that the system was designed to provide a stable retirement income framework which enabled trust and confidence that older New Zealand residents could live with dignity and mana, participate in and contribute to society, and enjoy a high level of belonging and connection to their families, community and country.
To help current and future retirees achieve this, the framework’s purpose was twofold: to provide New Zealand Superannuation to ensure an adequate standard of living for New Zealanders of eligible age, and to actively support New Zealanders to build and manage independent savings that contribute to their ability to maintain their own relative standard of living.
Ms Wrightson said there would be a series of policy papers over the next year or two in very plain English that would be aimed at the general public so that people could understand the competing tensions.
They would look at the affordability argument, means testing and age eligibility.
She also wanted the Government to think about how there could be better incentives for people to put money into KiwiSaver.
‘‘Because that is the longterm key to the millennials — while it might cost the Government money in the short term it really does help alleviate the longterm liability.’’
Last year’s Retirement Policy Review recommended the government’s annual contribution change to incentivise more voluntary saving to KiwiSaver by putting in $2 for every $1 up to $2000 per annum. Currently people get 50c for every dollar they put in up to $521 from the government annually.
Ms Wrightson said encouraging more personal savings could mean the government could hold off on pension increases in the future.
‘‘If there is evidence people have got a reasonable degree of saving . . . the problem of course is we are a lowwage economy — so it is very hard to save long term and because of that of course you need to start early, which is something we always mean to do and sort of forget.’’ — The New Zealand Herald