11 December 2019
Top 15 Retirement Income Issues of 2019
- Fees’ on Kiwi Saver and Managed funds are too high and have been for years. ANZ charging to managing Bonus Bonds, is unjustified, and the management fee should be half that cost.
- Contractors and self-employed miss out re KiwiSaver. This group needs to be targeted with specific KiwiSaver initiatives.
- Health topics require both transparency and discussion. Very little commentator discussion on Health Care issues, the delivery model and alternatives. Chronic illness across all age groups, and the end of life costs (last six months all age groups 0-90) dominate costs. Increasing health costs due to technology and supplier fees and products, and increasing the take up of private insurance, require attention and public debate.
- New Zealand Superannuation is the safety net for all retirement income planning. The model is very sound, efficient, effective, reasonable costs, excellent for women, and keeping the elderly from poverty. The costs of NZ Super over time are often exaggerated. The simplicity of the current model of NZ Super, and its universality is acknowledged as a world leader. Only minor adjustments are required, as and when they surface. The evidence clearly shows New Zealand has got it right.
- Longevity and aging of the population is a demographic reality. The topic requires careful analysis and cautious assumptions. The last few years of life (quality of life) may be impaired health, with a probability of a critical illness (e.g. cancer, stroke, heart, prostrate, alzheimer’s) affecting many, and the ability to work could become an issue. Different implications for different groups apply when longevity is discussed. Longevity for some groups is lower than others!
- The upward trend of New Zealanders over 65 in paid work continues, due to the fact most cannot afford to retire. However it’s the educated group that benefit mostly from this trend, and the hurdles to find work post 60 years, for the majority are considerable. Those most likely to need work later in life are the least likely to find it. There is little reason to be optimistic about this, discrimination toward seniors is rampant and deep seated!
- Consumers want consistency in changes to retirement income issue policies, and long lead in time to any proposed changes. The first Parliamentary party to accept this will harness good will and ballot box support. A task force similar to the Tax Working Group 2010, or the current Tax Review Group, would assist all political parties to make sound public policy choices regarding retirement issues.
- KiwiSaver supports NZ Super, and is a sound savings model. The default schemes should be based on an age related asset bias. Consideration should also be given to Government guaranteeing the scheme.
- Passive and index funds, generally produce similar returns to active funds. When lower fees for passive funds are factored in, schemes following this approach should be a favored option. Predicting in advance the performance of active managers is impossible, and with their fee structure normally higher and effecting returns over time, the client beware principal applies.
- Buying an annuity or similar product upon retirement or following receipt of post KiwiSaver lump sums and drawing an income from it, makes sense. Lifetime Retirement Income is the principal provider in NZ, with a sound business model, but competition is required.
- Rental accommodation issues need review. Housing needs are changing and the standard length of term and the issue of short term leases is just an example of matters requiring attention. A national housing symposium or similar would be helpful.
- Commission for Financial Capability should focus on Retirement Income issues. Engage in research both contracted and internal, should also be the source of authoritative analysis on Retirement Income issues. A hub of research including contracted work on topics is required. The focus on Financial Literacy while having merit in the intention, requires too much implementation resource to have any meaningful effect, and has left the Commission a limp reflection of what it could have been. The twice re-branding of the Commission name has been a failure marginalizing the Commission into a meaningless entity; New Zealanders have no awareness of the Commission name or role.
- Failure to Launch. The trend of parent’s supporting adult children with financial assistance continues unabated, yet this is severely affecting retirement year’s savings. Current trends are parents subsidizing children in various ways, including significant child care for under 5’s, housing loans and early inheritance gifting. Parents homes are becoming, a place of return by siblings 20-45yrs following divorce or early work experience. These costs are carried principally by parents.
- Seniors need help in making better use of the wealth tied up in their homes, to support their living options. Conversations on retirement village issues, reverse mortgages /house equity issues and inheritance approaches, need visibility and increasing discussion.
- Deposit Protection Scheme. New Zealand is one of the few countries that neither insures nor guarantees bank deposits, instead adopting the moral hazard principle, “make wise choices”. This is poor policy and needs to be changed. Government has signaled change, but this requires urgency.