Young people should budget to live to 100, actuaries say
New Zealanders are getting information about how to build wealth, but not how to spend it, a group of actuaries says.
Tuesday, December 3rd 2019, 8:53PM
The Retirement Income Interest Group of the New Zealand Society of Actuaries made a submission to the 2019 Review of Retirement Income Policies.
They pointed out that longevity was increasing but New Zealanders were being given insufficient information about how to make their money last.
"Guidance for New Zealanders is better for accumulation than for the decumulation phase."
They said it would be sensible for younger people, especially women, to plan for a retirement that lasted until they were 100.
The group said people should be given KiwiSaver statement wording and underlying projection models that were updated regularly to reflect the latest longevity data, encouraged to consider their decumulation options through to age 90, 95 or 100, and regulations should be introduced for KiwiSaver projections to explain different drawdown strategies and their consequences.
From next year, KiwiSaver providers will have to give annual statements including projections of what their income might look like in retirement.
"Compared with the accumulation phase (where it is usually agreed that any saving is better than none), decumulation is harder to generalise and there are more risks involved," the group said.
"People have limited resources in later life, especially once they have finished working, so it is hard to recover from a mistake or bad luck.
"Longevity risk can be dealt with by buying an annuity product, but the New Zealand market is currently limited to one product which will not be right for everyone."
Alison O'Connell, lead author of the report that accompanied the submission, said it was unlikely that providing for retirement could be left in the hands of private savings – even for the youngest New Zealanders.
She said New Zealand Superannuation was the best protection against longevity risk.
"It is quite possible that, despite the introduction of KiwiSaver, younger cohorts will need NZS just as much, if not more, than older cohorts, because of lower home ownership, lower wage growth, less stable jobs and lower savings rates.”
She said it would be a policy choice to keep the pension age at 65 – and it was not unaffordable for the country.
The group suggested, if there were to be a change, the age was lifted to a level where future generations could expect to have the same number of years on the pension as earlier generations.
“Even with an eligibility age of 68 years, today's 25-year-olds would be expected to receive NZS for longer than the cohort aged 85 who had an eligibility age of 60 years.”
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