The NZ Society of Actuaries (NZSA) has called for a national single source of statistical truth to back all retirement income claims along with uniform wording on decumulation strategies in KiwiSaver documents.
In a new paper published last month, a group of retirement income specialists in the peak actuarial body argue the current fragmented approach to modeling decumulation strategies in NZ is flawed.
“A proliferation of information may confuse actual or potential customers,” the report says. “Competition on drawdown service or cost is to be encouraged, but a standard framework within which such items can be compared would be in the best interests of customers.”
Produced by the NZSA Retirement Income Interest Group (RIIG), the study says offshore research has shown that savers require consistent, reliable and current models – such as ‘rules of thumb’ and longevity data – to make appropriate asset drawdown decisions.
“We interpret this as meaning reliable, up to date and consistent information on Rules of Thumb should be made widely available in all the different places and methods through which providers and other agencies must contact people who are considering or could be considering a drawdown decision,” the RIIG paper says.
The report also pushes for standardised retirement income wording in KiwiSaver statements and other relevant investor communications including financial advice.
According to the RIIG paper, an industry-wide approach to describing retirement income strategies would:
- encourage KiwiSaver members to consider drawdown options over different longevity assumptions – such as to age 90, 95 and 100;
- ensure provider information was based on the most recent longevity and other data (including economic variables); and,
- illustrate several asset drawdown “strategies and consequences” based on different rules-of-thumb as opposed to the linear income modeling to age 90 option “currently in regulations”.
Titled ‘How to make drawdown a success’, the report also supports keeping the current universal NZ Superannuation (NZS) pension system intact without income-testing for other assets including KiwiSaver,
“… if income-testing adjusted the amount of NZS according to how much KiwiSaver were drawn down, drawdown would be made even more complex, with the risks of mistakes (including receiving less NZS than entitled to) falling on those less able to navigate the system,” the RIIG paper says.
Furthermore, the actuarial think-tank lays out a broad ‘two-bucket’ strategy that divides retirement savings into a short-term “emergency” allocation and a longer-term portfolio to fund budgeted lifetime spending.
“The drawdown ‘bucket’ framework and the Rules of Thumb… can help to estimate how much income would be available from drawing down from KiwiSaver or other bucket(s),” the report says.
In general, the RIIG study says retirement income strategies need to be flexible as certainty on “what income might be needed twenty or thirty years after retiring is not feasible”.
The latest report follows on from previous retirement income studies produced under the NZSA banner in 2015 and 2019.
Chaired by Daniel Mussett, the RIIG also includes Alison O’Connell, Christine Ormrod, Fraser McKay, Kelvin Prisk, Ken Mackechnie and Simon Ferry as members.