The NZ government has a pivotal role to play in building better decumulation options in an era when traditional notions of retirement are facing disruption, according to Mercer NZ chief, Martin Lewington.
Lewington said as more New Zealanders work past age 65 the government was ideally-placed to provide annuity-like solutions that mesh state-funded pensions, retirement age and KiwiSaver into individualised post-work incomes.
“For example, say I decide to work full-time past age 65 and defer collecting my pension for five years,” he said. “And when I turn 70 I give maybe half of my KiwiSaver savings to the government – and in return I get paid 1.5 times NZ Super for life.
“If there was an element of compulsion that would help, too.”
While similar ideas have been mooted in the past, Lewington said the freshly-installed Labour-led government had a good opportunity to consider “holistic” approaches to solving the well-documented retirement income issues highlighted in a new Mercer global report.
The ‘Healthy, wealthy and work-wise: the new imperatives for financial security’ report published last week says populations across the world were facing common challenges including “economic uncertainty, remnants of the fiscal crisis, greater longevity, pension shortfalls, ageism, industry disruptors and benefit reductions”.
“These trends intersect health, wealth and career and place planning for later life at a crossroads,” the Mercer report says. “The findings depict an acute financial security gap comprising disparities in each of these three areas that are intensified by their interconnectivity.”
And as those pressures mount the traditional retirement age of 65 is looking increasingly outdated, the Mercer study found in a survey of 7,000 individuals aged over 18 in 12 jurisdictions.
“More than two-thirds (68%) of participants in the study don’t ever expect to retire or expect to keep working in later life,” the report says.
However, with people working longer “out of either choice or economic necessity” Mercer says governments, employers and individuals must all adapt to the new circumstances.
The report says later-life upskilling, age-accommodative workplaces and well-designed government retirement income policies would be essential components of the new environment.
But governments and employers could do more to help the vast majority of individuals stressed about retirement savings, Mercer says.
“Only one-quarter of pre-retirees are confident that they will save enough for retirement,” the study says. “Lack of confidence improves little with advancing years: only 29% of those currently over retirement age are confident that they have saved enough.”
Financial confidence, though, could be boost via a number of methods, Mercer says, including concerted efforts by government and employers to “engage people in saving for the future; redesigning retirement plans; and using smart technology to simplify, track and help people stay financially in control”.
About 80 per cent of respondents would turn to employers for advice about retirement planning – the most-trusted source bar family, the survey found. Financial advisers and government were the least-trusted for retirement planning guidance with each viewed positively by just over half of those surveyed.
The high-rating for employers as retirement planning experts appears at odds with the NZ situation – where dwindling corporate superannuation plans have been superseded by the largely workplace-neutral KiwiSaver regime.
However, Lewington said anecdotal evidence at least suggests employers were ramping up efforts to improve their employees’ health and wealth.
“I remember at an HR manager seminar 10 years ago just after KiwiSaver was introduced asking how many of them would be involved in providing retirement saving and health benefits – no hands went up,” he said. “When I asked the same question a few years ago there were a number of hands going up.”
Lewington said a growing number of NZ employers now realised that providing health and retirement planning benefits led to a more productive and stable workforce.
He said although the Mercer report did not include data from NZ (or Australia) many of the findings were transferrable to the situation here.
“The themes are relevant down-under and a good starting place for a holistic discussion about the issues,” Lewington said. “There’s a real opportunity for the new government to look at all retirement income strategies and decide which solutions would work in NZ.”