Accumulating retirement savings only half the battle, experts warn

22 November 2012

Middle-income New Zealanders have been told they must save to ensure they have a comfortable retirement, but face huge uncertainty when they have to manage lump sum payouts themselves, retirement researchers are warning.

The Retirement Policy and Research Centre at The University of Auckland’s Business School says low income retirees are often happy with New Zealand Superannuation alone, and the top 20% of income-earners are usually able to look after themselves.

But middle-income retirees are being essentially abandoned to manage their own savings over an uncertain length of time with unknown demands and in a volatile investment environment.

To begin a national discussion, on November 30 the Centre is holding a symposium at the Business School in conjunction with the Commission for Financial Literacy and Retirement Income, with speakers and practitioners from the retirement industry and finance sector.

Centre co-director Associate Professor Susan St John says there are few options that allow retirees to reliably run-down their savings, including equity in their own homes, in retirement. Some will spend their lump sums too quickly, underestimating the time they may live.

But for others, fear may lead to an unduly restricted lifestyle and result in unintended bequests.

The over 65s, she says, need access to products that will enable them to ‘decumulate’ their accumulated wealth in ways that help spread the risks of living a long time and of possible catastrophic health costs such as expensive end-of-life care.

Dr St John says New Zealand’s fragile culture of annuities and private pensions was killed off by government policy in the late 1980s.

“There are now virtually no New Zealand products for new retirees that spread the risk of outliving capital, yet individuals and society have a vested interest in facilitating this process. Worse, KiwiSaver has been designed with no forethought as to how the lump sums will be used, even though it is subsidised by taxpayers,” she says.

“The development of a market for annuities, where retirement savings are paid out on a regular basis for life, could be one answer. But there are reasons to doubt that such a market will ever emerge without explicit policy changes and government action.

“This is one of the most important but under-researched topics in retirement incomes. A country as small as New Zealand cannot afford to fall behind other countries in its thinking.”

The decumulation problem will be addressed in the symposium by experts in the financial world, demographers and pensions academics to explore the nature of imaginative 21st century solutions.

National and international speakers include Associate Professor Hazel Bateman from the Centre for Pensions and Superannuation at the University of New South Wales, Actuarial Studies senior lecturer Bridget Browne from the Australian National University, Professor Toni Ashton from the School of Population Health at The University of Auckland, and The Commission for Financial Literacy and Retirement Income’s Dr Malcolm Menzies.

More information on the Symposium and registration details are available here.