There will be growing demand for retirement income products as KiwiSaver matures, the author of a new report on pension policy says.
Mercer has this year expanded its Melbourne Mercer Global Pension Index to include New Zealand.
The index reviews global pension systems and assesses the benefits they provide, their sustainability in the context of ageing populations and the level of trust and transparency within their operations. It also recommends actions for improvement in each country.
The report gave New Zealand an overall score of 67.4, or B.
It said the overall index value could be increased by boosting the level of KiwiSaver contributions, raising the level of household savings, increasing the focus on income streams in place of lump sums and continuing to expand coverage of KiwiSaver.
Author David Knox said the first step was to change the way the country’s financial services sector talked about saving for retirement.
“Part of it is trying to change the language framework of the whole system,” he said.
Providers should talk about saving to replace income, he said, because that was savers’ key goal – not amassing a lump sum.
Knox said he did not support the prospect of compulsory annuities, as in some European countries. “People have very different circumstances in retirement. Some are in poor health, some are in good health.”
But he said the development of income products needed to be encouraged, which could be done through tax incentives.
Many people were self-insuring, he said. “They’re thinking ‘I might live to be 100, I won’t spend all my money. The catch is that then there is money left on the table for the kids. Pension systems are not designed to deliver money to the next generation.”
Traditional annuity products were not attractive in a low-interest environment, he said, but there should be product innovation that allowed flexibility alongside longevity pooling.
Demand was growing in Australia, where compulsory superannuation saving had been around 25 years, he said. When New Zealanders’ KiwiSaver balances got bigger, there could be more of a consumer push for such products here, too.
Knox said there would need to be more education so consumers understood the demographic changes that would make it harder for governments of the future to provide the same levels of support.
Mercer’s New Zealand chief executive said KiwiSaver and NZ Super played a significant part in helping New Zealanders reach their desired retirement income.
“KiwiSaver features, such as contribution rates and compulsion, if amended could further improve New Zealand’s ranking and most importantly the well-being of Kiwis when retiring. Changes can be made to encourage the disengaged, those on lower incomes and the young.”