Time to address our rapidly ageing population
It's time for the Government to muster the courage to introduce policies appropriate for a rapidly ageing population, argues the University of Auckland's Dr M. Claire Dale
The Retirement Commissioner has a statutory obligation to produce a report on retirement income policies every three years. This year’s review has had little fanfare so far and the terms of reference have only just been released. The report is expected by December 2019, which allows little time to properly examine the pressing issue of suitable policies for our rapidly ageing population.
In line with this Government’s emphasis on wellbeing and sustainability, the terms of reference stress that the review must assess “the effectiveness of current retirement policies for financially vulnerable and low-income groups, and recommendations for any policies that could improve their retirement outcomes”.
With respect to retirement income policies - the crux of the review - an Official Information Act request to the Ministry of Social Development revealed that more than 41,000 of people receiving New Zealand Superannuation also need the Accommodation Supplement to pay their private rental costs. They join with the other 249,000 people receiving the supplement, costing the Government more than $27 million a week. This suggests both that NZS is inadequate and private rents are too high.
There are some useful topics around the changing nature of work, changes in labour market participation by those aged 65 and older, and declining rates of home ownership. Also, as in previous reviews, much attention is given to KiwiSaver, including the level and types of fees charged by KiwiSaver providers, the impact that fees may have on KiwiSaver balances, and ethical investments.
Critically important topics include the impact of current retirement income policies on current and future generations, and the fiscal sustainability of current NZS settings. An ageing population means a shrinking number of working-age people to support a growing number of old and increasingly frail people, which imposes obvious fiscal challenges.
The international environment needs to be brought into any discussion of these topics, as many countries, including Australia, have already increased their qualifying age for the pension above 65 and are in the process of increasing it further. Any discussion of this needs to recognise that not all sectors of the population have the option or ability to work past 65.
It is good to see that a topic included is: “An assessment of decumulation of retirement savings and other assets”. (Decumulation is the process of drawing down assets in retirement). The RPRC has written and lobbied extensively on the importance of the availability of decumulation instruments, and argue that the benefits of KiwiSaver are undermined by the lack of viable, reliable options for spending those savings over the remaining uncertain lifetime.
It would have been helpful to take this opportunity to have a proper evaluation of total remuneration toward standardisation of employer KiwiSaver contributions for employees aged 65+. This issue is increasingly important as people continue in employment beyond the qualifying age for NZS. Currently, the legislation says an employer does not have to pay their contribution to an employee’s KiwiSaver account once they turn 65. That is unfair because the 65-year-old employee is paid less than their 64-year-old colleague.
While in opposition, this Labour-led Government was strident in its criticism of New Zealand’s treatment of some of those with overseas pensions. Yet, apart from increasing some Pacific Islands’ access to NZS, it has refrained from making any changes, and this topic is absent from the terms of reference. The glaring anomaly of the treatment of spouses who lose part or all of their NZS merely because they are married to someone with a large overseas pension could - and should have - been dealt with long ago.
The topic introduced as “Information about the public’s perception of the purpose and principles of NZS” creates the opportunity to discuss NZS, and compare it with other welfare benefits. It is also an opportunity to propose pathways to ensure the continued universality of NZS.
After past reviews, most recommendations have been ignored. Some small improvements, for example increasing the transparency around KiwiSaver fees, have been put in place. Changes to come by April 1, 2019 include contribution options of 6 percent and 10 percent, in addition to the current 3 percent, 4 percent and 8 percent; and the contributions holiday will be renamed a savings suspension and shortened from a maximum five years to one year. These changes were among the recommendations made by Retirement Commissioner Diane Maxwell in her 2016 review but were not picked up by the previous National-led government.
The hope is that this time the review is substantial, its recommendations are debated widely, and the Government has the courage to introduce policies appropriate for a rapidly ageing population.