The 1992 Task Force on Private Provision for Retirement[1]proposed the establishment of a Retirement Commission to manage the then-recommended six-yearly reviews. The suggested responsibilities included:
(a)Completing the proposed changes to implement the recommended “improved voluntary regime and monitoring programme”.
(b)Making recommendations to strengthen the regime;
(c)“Encouraging private retirement provision through the continuing programme of public education and information to individuals, employers and others; and
(d)“Managing the work programme of information gathering, research and analysis that is necessary for the reviews to fulfil their purpose of assessing the success of the integrated retirement policy regime.”[2]
The report continued:
“The public, the industry and the political parties would need to have confidence that this body had the expertise and resources to do a thorough job, was independent, and had a brief that spanned the various inter-connected issues involved.
It would be equally important to ensure that the Commissioner’s role is focussed on the collection and dissemination of factual information. This would reinforce the idea of policy stability in the period between reviews, rather than the Commissioner being, or being seen as an instrument of continual change.” (at page 93)
The government accepted the recommendation for the establishment of the Retirement Commission that started with the appointment of the first Commissioner in 1995.
Since the original 1992 Task Force on Private Provision for Retirement, we have had six reviews - the Periodic Report Group (1997); Periodic Report Group (2003); Retirement Commissioner’s Review of Retirement Income Policy (2007); the 2010 Review of Retirement Income Policies; the Review of Retirement Income Policies (2013) and, most recently, the 2016 Review of Retirement Income Policies. None of these reports has come close to what is now needed because, apart from anything else, none had the depth or breadth of data required to support the necessary full review and the financial resources were either inadequate or allocated in the wrong areas.
In a 2015 speech, the then Prime Minister Bill English said that data and analytics should be an intrinsic part of policy-making:
“Policy without using these tools won’t mean much to us, because our policy is getting better results for customers. We are taking this seriously enough to build this into the process in a way that has not been done before."[3]
Nowhere is this more true than in policies associated with financial preparation for retirement, income in retirement and services associated with older people. This is because of the long-term nature of required planning and protections to limit the potential damage from sudden shocks.
For example, through the Survey of Family Income and Employment (SoFIE), we discovered, in 2006, that New Zealanders seemed to be saving, on average, enough (even, perhaps, more than enough) for retirement[4]. On that basis, KiwiSaver need not have happened and taxpayers could have saved the $10.1 billion spent so far on tax subsidies. We now know that, as of 2010, households in KiwiSaver had, on average, fewer financial assets than those who aren’t KiwiSaver members. Those findings came from SoFIE that ended in 2010 (see section 15 above for more on this).
An underlying theme of most of the points made in this report and the questions that New Zealand must discuss, is the crucial significance of impeccable, deep data. Discussions about policy options are necessarily limited in their absence. That is one of the reasons we were so disappointed with the Retirement Commissioner’s 2016 Review.
We think the idea of the Retirement Commission (so named) should return to the original objectives laid out in the 1992 report and that its governing legislation[5]should be amended to reflect that.
As we have said in section 11 (The role of the government) gathering more, better data is something that only governments can do. We need to be better informed about how New Zealanders are preparing for retirement so that we can see whether there is are policy gaps that governments need to address.
We agree that an important part of a 21stCentury NZS is a regular review process of the kind currently carried out every three years by the Retirement Commissioner (under section 83(c) of the New Zealand Superannuation and Retirement Income Act 2001, accessible here). However, if those reviews were more independent[6]and were properly resourced, they need not be every three years: every ten years would probably be sufficient (the 1992 Task Force recommended every six years).
The reviews should also be confined to NZS and its implications to both public policy and private responses. We do not dispute the significance of issues associated with financial literacy but suggest the Retirement Commissioner has been diverted from the main purpose of the reviews recommended by the 1992 Task Force. Financial literacy seems more naturally associated with school curriculums and ‘further education’ rather than public policy issues associated with retirement incomes, though the two are related (in much the same way as reading skills and disclosure regimes are connected).
One of this report’s most significant recommendations (section 15 – Households’ financial position) would see the development of a permanent, longitudinal survey of households’ financial behaviour. As we said, the only way to discover what is happening at a household level is to find out from households themselves what they are doing – what they own and owe; what their retirement aspirations might be and what they might be doing about those now and over time. And, if we do not start this process soon, we will still have inadequate data for the 2022 Review.
And this is not just about money – work, health, obtaining new skills, moving to a new location, housing, different decisions by household members and family support and responsibilities all play a part in the ‘retirement’ decision. We have no idea how these influences affect retirees today and we must find out.
SoFIE tried to uncover some of this crucial information and some insights emerged but the longitudinal process did not work well. We understand that matching later tranches of data to earlier required some quite heroic statistical work. That limited both the timeliness and usefulness of the data produced.
New Zealand needs to learn lessons from SoFIE and we must do better next time, but it will take at least 10 years, once the new survey starts, for meaningful patterns to emerge. To have a full review in 2035 will be only just enough time, as long as the commitment for the recommended survey is made now.
Part of the national discussion that New Zealand now needs should be a review of the Retirement Commissioner’s role. The Retirement Commissioner should contribute to that discussion but cannot run it.
Terms of reference for 2019 Review
There was no reference in the Terms of Reference for the Retirement Commissioner’s 2019 Review to issues associated with the operation and effectiveness of the Commission for Financial Capability itself. We agree that the CFFC’s functions cannot be reviewed directly by the Retirement Commissioner, but they do need reviewing - the following questions need addressing sooner rather than later.
Questions New Zealand needs to discuss on the retirement income review process:
What exactly have the six regular reviews of New Zealand’s retirement income policies[7]achieved (recommendations made vs. recommendations implemented; quality and significance of recommendations and supporting data)?[8]
Should the scope of the Retirement Commissioner’s work be returned to the recommendations of the 1992 Task Force?
How can we increase the Retirement Commissioner’s influence in the debates on policy issues associated with financial preparation for retirement? Limiting the scope of the Commission’s work may be part of the answer.
What should be the format of the needed national discussion?
[1]Michael Littlewood was a member of the Task Force.
[2]Task Force on Private Provision for Retirement, December 1992 The Way Forward, at page 93.
[3]Speech to the SAS Users of New Zealand Group, February 2015. Report accessible in CIO from IDG here. This led to the establishment of the Social Investment Agency that “[b]y crunching the numbers, we’re supporting the social system to understand what investments will help New Zealanders get better outcomes” – see the website here. We hope to have demonstrated in this report the need for this kind of analysis as so much of what the government has spent over decades has been wasted or ineffective.
[4]That finding ran counter to much of the contemporary debate that focussed on seemingly dire ‘household saving rates’, drawn from the ‘System of National Accounts’. In Saving in New Zealand: Measurement and Trends, Iris Claus and Grant Scobie (Treasury, 2002, accessible here) suggest that households’ saving behaviour should be measured by the ‘stocks’ approach (changes in net wealth) rather than the ‘flows’ (measured ‘income’ less measured ‘expenditure’). “In fact, we find no evidence that private saving has moved to a lower rate in the past decade when correcting for inflation”. Had that been more widely understood at the time, New Zealand might have avoided both KiwiSaver and the New Zealand Superannuation Fund.
[5]Part 4 of the New Zealand Superannuation and Retirement Income Act, 2001 (accessible here).
[6]Why, for example, can the Retirement Commissioner review only those matters that the Minister of specifies: see section 84(1) of the New Zealand Superannuation and Retirement Income Act 2001 (accessible here)? The answer to that can only be a political one. It makes little sense if we really want to understand policy issues associated for retirement incomes.
[7]The Periodic Report Groups of 1997 and 2003 and the Retirement Commissioner’s reviews of 2007, 2010, 2013 and 2016.
[8]The government’s formal response to the 34 recommendations and observations in the Retirement Commissioner’s 2016 Review (letter of 7 June 2017 accessible here), gave approval to eight, disagreed with 13 and acknowledged more work is needed on the remaining 11. The final two were ignored. However, it’s not just a matter of the numbers – the analysis should allow for the substance of the recommendations as well.