As the first wave of members draw down on their KiwiSaver funds from July 2012, raising the age of eligibility to 67 and delaying access to NZ Super are potential solutions to sustain members’ funds throughout retirement, according to a new paper by Mercer.
Mercer’s discussion paper ‘Securing Retirement Incomes – New Zealand’s Retirement Incomes Challenge’ examines the need for an effective ‘decumulation’ phase of retirement as KiwiSaver members start to draw down on their retirement savings for the first time this year. The paper examines the essential elements of the post retirement phase, raising the need for funds to last long enough and at a level that provides an adequate lifestyle for our ageing population.
Mercer’s insights highlight the uneasy reality the number of recipients of NZ Super will increase from just over 500,000 in 2010 to 1.3 million by 2050; complicated by the number of people aged over 85 rising fivefold by 2050. If no changes are made in the short term, the potential financial impact of our ageing population is likened to a crisis that could dwarf the global financial crisis.
Mercer’s paper highlights the solutions available to help combat this financial predicament and the role individuals, KiwiSaver and super funds, financial institutions and the government must play.
Martin Lewington, Head of Mercer New Zealand believes KiwiSaver and superannuation funds must review their current models, structures and products to ensure they help Kiwis to live a financially secure lifestyle in retirement, without straining the public purse.
“With July fast approaching, it is more important than ever for Kiwis to successfully manage their post retirement ‘draw-down’ phase and for the industry to develop adequate and sustainable income streams for retirees. Part of the solution lies in educating New Zealanders about the ‘self help’ options available to them, such as postponing retirement, which is proven to significantly lengthen the life of superannuation balances over the longer term,” Mr Lewington said.
“Ultimately, the industry, government and individuals must come together to solve the national retirement issue and do what is best for New Zealand’s future generations. Members naturally want to access their retirement funds as early as possible, but by delaying access to NZ Super to 70 years old, the projected annual savings in costs could be as much as $2.4bn. Such huge savings cannot be ignored and every individual needs to be made aware of their role in relieving our looming retirement crisis,” Mr Lewington said.
In the report, Mercer has provided a number of recommendations to improve the sustainability and adequacy of post retirement savings, including:
- The development of an annuities market facilitated by government to help provide retirees with a source of income throughout their retirement years.
- With the increase in life expectancy, retirement may be deferred. Mercer modelling demonstrates that by deferring retirement by one year it is likely to delay the age at which a member’s retirement savings run out by one-and-a-half to two years.
- Employers and HR professionals developing patterns of work that appeal to older workers such as job-sharing and flexible working hours, to encourage them to delay retirement.
- Increasing the age of eligibility for NZ Super from 65 to 67 and encouraging members to postpone accessing their funds until 70 years old, to significantly extend the national retirement fund pool. In exchange, individuals would receive a one-off higher NZ Super payment.
- Encouraging investors and KiwiSaver providers to look beyond traditional defensive asset strategies which emphasise fixed interest investment allocations and instead offer an expanded set of asset classes, offering members a portfolio construction suited to their specific needs and retirement lifestyle.
David Anderson, Mercer’s Managing Director Australia & New Zealand and Mercer’s Australia & New Zealand leadership team recently visited Wellington and Auckland to meet with clients and stakeholders. This important business trip was undertaken in recognition and is testament to the importance Mercer places on the New Zealand market. One of the visit’s imperatives was to ensure Mercer New Zealand’s service offering is best tailored to meet the financial security and retirement readiness of its people.
Mercer is a global leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. Follow Mercer on Twitter @Mercer_NZ