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Michael Littlewood

Retirement income policies: what we know and what we don’t

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New Zealand’s retirement income and savings arrangements are reviewed every three years by our Retirement Commissioner.  The last review came out in December 2016 and took the form of a cartoon-style presentation on the Commission’s website here.  I am, perhaps, over-interested in data and detail on retirement income issues.  Diane Maxwell, the Retirement Commissioner, tried a new way of presenting things and it fell completely flat for me.  I couldn’t get past Ken and Barbie to find out what the Retirement Commissioner was recommending and what the evidence was for those recommendations.

It might be my age; she was probably not that interested in people like me – in fact, she has said as much, describing me indirectly as suffering from “blinkered, if earnest, elitism.” 

It was only when I saw the paper version here, published “to satisfy the requirements of the [Act]” that I could see what the Retirement Commissioner was actually saying.

So here’s the thing: of the 34 recommendations and observations in the statutory, old-fashioned version, there was little to no supporting evidence on show.  Diane Maxwell has said recently that her report “…contained more data, analysis and submissions than previous reports” but I couldn’t find them and I am really interested in the topic and wanted to see the evidence that supported her recommendations.

An actuarial friend, Michael Chamberlain and I decided to do something about what we felt was a wasted opportunity.  We have published the report we think New Zealand should have received in 2016.  It’s called The Missing 2016 Review – building trust for life beyond work. The website www.alt-Review.com makes it accessible.

The main theme of our report is ‘missing information’.  We know quite a lot about what is happening (and what not) but not nearly enough to start a research-led debate on issues associated with saving, retirement and retirement income that would lead to evidence-based decisions.  We have identified 125 questions under 21 topic headings that New Zealand needs to discuss but only after we have the needed data.

For example, here is a summary of what we knew before the Retirement Commissioner started her 2016 review:

  • New Zealanders were probably slightly over-saving for retirement before KiwiSaver started in 2007 (Treasury reports from 2004, March 2007 and 2009);
  • Of KiwiSaver contributions, about one-third was ‘new’ savings, the rest being effectively transferred from other financial assets (Treasury report 2011);
  • KiwiSaver members seemed to have accumulated less net wealth than non-members (Treasury report 2014);
  • Poverty levels amongst the over-65s are the lowest of any of the groups in New Zealand society (MSD reports from 2007 to 2013) and are among the lowest of over-65s in any country (OECD 2008) and also by comparison with 27 EU and other European countries (2009);
  • The overall cost to taxpayers of retirement income policies (public and private) is amongst the lowest in the developed world (OECD 2015).

All this probably helps explain why, of all New Zealanders over age 65 in 2014, a Statistics New Zealand survey found that 71% reported having “enough or more than enough money” and 86% reported having “high life satisfaction (7-10 on 11-point scale)”.

Before the Retirement Commissioner’s 2016 review, New Zealand’s overall retirement income framework seemed to be ‘working’: people seemed to be saving ‘enough’; there was limited ‘poverty’ in old age and favourable international comparisons, all at probably the lowest overall cost to taxpayers of all developed countries.  That doesn’t make it ‘right’ but it should make us tread carefully before changing things.

Just looking at just this small selection of 11 reports, we could conclude that:

  • KiwiSaver wasn’t needed in 2007;
  • KiwiSaver may not be ‘working’ now;
  • We have (and had in 2007) low levels of poverty amongst the old, both compared with other groups in New Zealand and internationally;
  • The over-65s, as a group, seem to have enough money and are satisfied with life.

None of this was mentioned in the Retirement Commissioner’s 2016 Review.  Instead, there was very little discussion on New Zealand Superannuation and a number of recommendations suggested the ‘strengthening’ of KiwiSaver (more restrictions, fewer options, higher contributions).

If KiwiSaver really wasn’t needed in 2007 and may not be working now, why might New Zealand even be interested in ‘strengthening’ KiwiSaver?  Shouldn’t we be asking whether we need KiwiSaver at all in its current form?

The Retirement Commissioner’s answer is that “it would not be a good use of taxpayers’ money to invest time and resources asking if KiwiSaver should exist…Over 2.7 million Kiwis have over $40 billion in funds under management.  It’s here.”

So, Diane Maxwell is happy for taxpayers to spend another $3 billion over 2016-2020 on tax breaks for KiwiSaver contributions without even questioning whether it’s working.  In fact, her suggestions would see even more than that spent.

She and I have different priorities when it comes to public policy discussions.  I have a slightly old-fashioned view; I like evidence of what works and what doesn’t and then like to focus on things that seem to work.

Michael Chamberlain and I have laid out everything that New Zealand knows now and have also identified what we don’t know.  We have also suggested a research and reform pathway and listed here the nine key elements that we that we think should form the framework of a sustainable, flexible, inclusive, successful retirement income framework.  None of those items was even mentioned in the 2016 Review.

New Zealand has a retirement income framework that, compared with the rest of the developed world, is closest to our ideal.  However, that’s a low bar to clear.  We can make things much better but we must start with impeccable, deep data.  The Retirement Commissioner missed that first step and that’s why we called the 2016 Review an evidence-free zone.