In the Retirement Commissioner’s 2019 Review the highlighted message was “NZ Super is good value“. Recommendations followed three themes: (a) retain and complement the public pension, New Zealand Superannuation; (b) improve the stewardship of retirement income policies; and, (c) improve KiwiSaver, the main private retirement savings product.
The 3-yearly Retirement Commissioner’s Review is usually a good check on the temperature of retirement income policies in New Zealand and a source of data, research and analysis from submissions and research reports. My last post covered the submission with which I was involved, on the context and principles for retirement income policy, with a focus on longevity.
The recommendations are summarised below, grouped by the three themes, but retaining the original numbering.
(a) Retain and complement NZ Super
3. Value and ensure the ongoing provision of NZ Superannuation at its current settings.
4. Establish a new government ’employment connection’ service. Along with considering additional forms of housing support, this is an action for the government now to help improve the financial position of people when they reach retirement.
(b) Improve stewardship of retirement income policies
1. Governance for the Retirement Commissioner and their office should be provided jointly by the Ministries of Social Development and Business, Innovation and Employment.
2. The regular review cycle should be amended to fall in the year after an election, rather than prior.
14. A purpose statement for New Zealand’s retirement income system to be advanced by the Retirement Commissioner. This is so “we all have certainty as to what the system is aimed at achieving, and who within government is responsible for each part of it, as well as for the whole“.
In addition, the Retirement Commissioner intends to advance:
- Work to examine current and developing need and demand for decumulation products and test options for government actions.
- An Expert Advisory Group to ensure ongoing input to the Retirement Commissioner’s work programme to improve the retirement income system, including the decumulation project, the development of a purpose statement and a research programme.
- A consultative Senior Officials Group of Deputy Chief Executives from all Ministries with responsibility for some aspect of retirement income policies to ensure a collective view of the government’s retirement income programme can be quickly built.
- Regular updates to both public and government on trend data related to retirement income issues and on the Retirement Commissioner’s work.
(c) Improve KiwiSaver
5. Introduce a ‘small steps’ employee contribution programme to KiwiSaver as the default for new members, and as an option for current members.
6. Target the government contribution to incentivise voluntary contributions to KiwiSaver by non-employees. The suggestion is to increase the government incentive, currently 50 cents per dollar up to $521.43 per year every year of membership, to $2 per dollar up to $2000 per year for the first 12 years of membership.
7. Phase in employer contributions for KiwiSaver members aged over 65, and consider implications of doing so for those aged under 18.
8. Phase out the inclusion of KiwiSaver in total remuneration packages.
9. Model the potential range of impacts if the owner-occupied requirement for first-home withdrawals from KiwiSaver was to be withdrawn.
10. Establish a centralised financial capability hub for KiwiSaver hardship applications.
11. Add a ‘sidecar’ savings facility to KiwiSaver for short-term emergencies.
12. Auto-enrol beneficiaries in KiwiSaver through a government contribution.
13. Consider the introduction of care credits to KiwiSaver accounts to reduce the risk of being penalised for time out of employment caring.
15. Exclude fixed fees from low-balance KiwiSaver accounts. For all balances under $5000, require providers to remove fixed fees.
16. Display fee projections on KiwiSaver members; annual statements, and include a comparison to the average fee projection for that type of fund.
17. Mandate improved disclosure around share investing in KiwiSaver, further distinguishing between emerging vs established markets, as well as New Zealand versus Australian shares.
18. Make Prescribed Investor Rates (PIR) tax refundable. This would change PIR status to ‘not a final tax’, and accommodate people who use incorrect tax rates.
19. Introduce taxpayer funding of Mindful Money to guarantee the charity continues to publish unbiased, responsible investment information and erase any potential conflicts of interest.
To understand the rationale for each of these recommendations, it’s important to read the whole report and the assessments made of the evidence and public submissions. In particular, most of the KiwiSaver recommendations are intended to ensure the product “is working as effectively as possible for its target savers, i.e. those New Zealanders who would otherwise not save enough to maintain standards of living” and “to consider options to support the ability of the lowest income and most vulnerable New Zealanders to save“.
The report and recommendations agree with several themes on this blog, including:
- Policy on NZ Super should start by understanding values, not cost. Keeping NZ Super at age 65 can be afforded, is consistent with New Zealand’s unique issues of equity, and New Zealanders generally want the current system to stay in place.
- The success of KiwiSaver means there will always be debate on changing its settings, including coverage, fees and incentives.
- More work needs to be done to identify how many people need assistance to manage decumulation of retirement savings, and what, if any, the government role in that should be.
The overall message is that both pillars of NZ’s retirement income policy are, and will remain, important, but we need higher quality stewardship of the system in which they operate.