It’s not hard to find headlines grumbling about our lack of retirement preparedness, from low KiwiSaver balances to the inadequacy of NZ Super in the face of spiralling living costs. But how well are we doing compared to our global peers?
Kiwis lead in some things
For starters, we’re world leaders in working past the age of eligibility for state-funded superannuation (NZ Super). And this is partly thanks to our set up, which means we can earn as much as we like after we turn 65 and still receive our full entitlement of NZ Super. We just have to pay income tax on our earnings like everyone else.
Meanwhile across the ditch, Australians are arguably deterred from working past the age of eligibility because they can only earn a small amount before they start losing some of their state-paid pension.
Is that why more than a quarter (26%) of Kiwis aged 65+ are still working, compared to only 15% of our Aussie counterparts? Or could another factor be that Australia’s personal retirement savings scheme – their version of KiwiSaver - is considerably more lucrative than ours and fewer need to work in their later years? In Australia, people retire with around AU$408,000 on average in personal retirement savings, compared to the average KiwiSaver balance of NZ$54,000 for Kiwis aged 65+.
The Global Pension Index
A new report – the Mercer CFA Institute’s Global Pension Index (GPI) – ranks the pension and superannuation systems of 47 countries around the world based on factors like the benefits future retirees are likely to receive, how sustainable each system is given the challenges posed by ageing populations and economic conditions, and whether citizens have confidence in the integrity of their retirement funding set up.
New Zealand came in at #17, with a B grade overall. We ranked behind many Northern European countries, including the Netherlands, Denmark, and the UK, as well as Australia in fifth place, but ahead of countries like the US, Germany, and France. So, not a bad grade – but definitely room for improvement.
Playing KiwiSaver catch up
While Kiwis’ universal entitlement to NZ Super is widely respected as a valuable benefit, we know that the soaring costs of living and the post-work lifestyle many of us aspire to mean it’s not enough on its own.
KiwiSaver isn’t perfect, but it certainly helps plug this gap and will become more significant as it matures. The problem is we’re late to the party compared to countries like Australia, which implemented personal retirement savings scheme decades ago. That means we’re playing catch up.
It might be unpopular, but the fact is our minimum contributions are too low. The GPI report points this out too, suggesting an increase from the current level of 3% is in order. The report also makes special mention of ‘reducing the leakage from the retirement savings system prior to retirement’.
Simply put, this means we shouldn’t let people dip into their KiwiSaver accounts unless it’s absolutely necessary. In this respect, it’s vital that we’re extra careful with suspended contributions, first home buyer provisions, financial hardship withdrawal and proposals like rental bond deposits that some politicians promised prior to the General Election.
Retirement income is key
Our pension system was further marked down because we do not currently require or actively encourage people to structure their retirement savings as an income stream, rather than a lump sum. This is an important point. The late Sir Michael Cullen’s vision when he set KiwiSaver’s wheels in motion was to provide an income supplement to NZ Super to allow retirees to enjoy a retirement income which would support their best life in retirement.
As a country, we’ve become much better at talking about how to accumulate savings, which is KiwiSaver’s stock in trade. We spend less time helping people get to grips with life after KiwiSaver, including how best to structure their finances to generate an income that will last as long as they do.
Lifetime Retirement Income was set up precisely to fill this gap, with Sir Michael Cullen as a founding Director.
Vanessa is Head of Communications at Lifetime Retirement Income. She’s an experienced investment writer, having spent more than a decade writing about financial markets in the global fund management industry.
Invest with Lifetime for a retirement income managed for living.