As explained in the introduction to this report, we were extremely disappointed with the Retirement Commissioner’s 2016 review of retirement income policies. For the reasons described in the Introduction, we suspect the 2019 Review will see no real progress. Sections 2 to 22 below describe the issues and the questions that New Zealand needs to discuss.
So as to put that detail into context, we have picked out the nine key elements that we think should form the framework of a sustainable, flexible, inclusive, successful retirement income framework. We list them in order of significance to us.
1.1 Economic growth: Greater economic growth (than expected) should be central to discussions on every aspect of public policy, including retirement incomes. At the foot of every significant retirement or pension policy proposal should be the question: ‘How does this help New Zealand grow more than under current settings?’ Not all policy changes have to be about economic growth, but if we do not get that growth, we will not see material improvements in the standard of living of the population, including retirees. See section 2 for more.
1.2 Longitudinal household survey: Unless we know what households are doing in their financial lives and what their aspirations are over time, public policy debates will take place in a vacuum. We won’t know whether things need changing, nor the chances that any proposed change might actually work. We can’t even see whether current policy is achieving its objectives. See section 15 for more.
1.3 Review process: The current triennial review of retirement income policies isn’t working and must change. New Zealand should aim to create a world-class centre of research excellence on financial issues at a household level – the Dunedin Multi-Disciplinary Health and Development Study is a model for our recommendation. See section 21 for more.
1.4 First principles review of New Zealand Superannuation: New Zealand needs a research-led review of every aspect of NZS and, based on its Terms of Reference, we do not expect the 2019 Review to achieve our recommendation. New Zealand has never done such a review before. NZS is the best Tier 1 scheme in the world but it can undoubtedly be improved. See section 6 for more.
1.5 First principles review of KiwiSaver: We think KiwiSaver was the ‘answer’ to a ‘problem’ that New Zealand probably didn’t have. New Zealand needs a research-led review of every aspect of KiwiSaver – what exactly are its policy objectives? Does New Zealand need KiwiSaver in its current form and, if New Zealand does, how can KiwiSaver be made better? See section 14 for more.
1.6 First principles review of disclosure: Knowing what financial service providers are actually doing and how financial products might suit consumers should be at the heart of regulatory supervision. New Zealand has tried to fix this, but we need to return to the beginning. See section 18 for more.
1.7 Uniform income tax system: All ‘income’ should be aggregated and taxed at the saver’s appropriate marginal rate. All ‘income’ should be used for income-tested welfare benefits. What happens now doesn’t come close to those objectives and must change if tax treatment is to be removed as an influence on saving decisions. The present system is illogical, inconsistent, complex and unfair. See section 17 for more.
1.8 Mathematical competence: We think that governments probably cannot improve citizens’ ‘financial capability’ but we strongly believe that encouraging mathematical competence should be at the heart of every aspect of school curriculums, not just mathematics. Mathematical competence is central to making personal financial decisions about retirement and also to nearly every other part of our lives. See section 20 for more.
1.9 Retirement incomes ‘accord’: Retirement income policies are particularly unsuited to political contests. The eventual objective of the first-principles review we propose should be a 2023 version of the 1993 Superannuation Accord. However, this is not just a matter for politicians. The Accordshould be supported by an inclusive review framework with impeccable, deep data at its heart. The more we know about what citizens do and what help some groups actually need, the more confident we can be about the framework’s long-term sustainability. See section 22 for more on this.
None of these nine listed key elements, that we think should form the framework of a sustainable, flexible, inclusive, successful retirement income framework, rated a mention in the Retirement Commissioner’s 2016 Review of Retirement Income Policies. They were missing in action. The substance of them is also missing from the 2019 terms of reference.
If the 2019 Review produces a report that responds to each of its eight Terms of Refence, it will not come close to the first-principles review that we recommend. For example, paragraph 3 b. asks about the impact that “Declining rates of home ownership” might have on “government retirement income policies”. But, as we explain in section 12 below, we have no idea whether home ownership rates are falling. There is no reliable evidence that is happening.
We have more to say on each of the Terms of Reference at the appropriate place in this report.