Inside Money

Business writer David Chaplin blogs on personal finance

Inside Money: Will old news fall on deaf ears?

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Photo / Thinkstock
Photo / Thinkstock

I once had the job of tinkering with the language contained in a flyer titled 'Live to 100'.

The flyer designed, of course, to sell retail financial service products argued that pretty much everyone alive then in the developed world would probably live to 100 (at least) and therefore run out of money in retirement (unless they buy this retail financial services product).

Despite having to read over the flyer several hundred times, I wasn't convinced of its core proposition. At the time the prospect of living to 100 seemed to me an unlikely and unwelcome one. I didn't buy that retail financial services product.

Now, 15 years closer to 100, the flyer is beginning to have more resonance with me. Living to 100 is slightly more likely, although I still wouldn't describe it as welcome.

Advertising hyperbole aside, 'Live to 100' was tapping into the fear about real demographic trends in large swathes of the developed world: people just aren't dying like they used to, or reproducing for that matter.

In a kind of riff on the 'Live to 100' theme, investment consultancy firm Mercer (you may know them also as a default KiwiSaver provider) has highlighted New Zealand's particular age-old old-age problem.

Prompted mainly by the imminent opening of the KiwiSaver exit doors for the first time, Mercer has used the moment to press for a cohesive approach to retirement incomes.

According to the Mercer paper, about 75,000 KiwiSaver members (aged 65 and above) will be eligible come July to withdraw their funds from the scheme, which has now passed the minimum five-year operating period.

As the Mercer paper, titled 'Securing retirement incomes: New Zealand retirement incomes challenge', highlights there is little incentive for the 75,000 aging KiwiSavers to keep their money invested with their providers. A few KiwiSaver schemes are looking to retain members by offering 'draw-down' plans, paying out regular amounts but keeping a portion invested as long as possible.

However, I suspect, as Mercer probably does too, that most members will turn their KiwiSaver lump sum into cash as soon as possible. KiwiSaver was really designed with young savers in mind with little thought given to draw-down, or 'decumulation' as us experts call it.

"This 'decumulation' phase is critical to New Zealand's retirement funding model," the Mercer paper says. "However, there are currently few options that go beyond taking it as a lump sum upon retirement. Nonetheless, it's critical that individuals are able to use structures that ensure their savings last long enough, at a level that provides a comfortable lifestyle."

Mercer offers a few ideas: geeing up the government to kickstart an annuities market; extending the age when the government pension kicks in to encourage working past 65; financial services firms to design better products; the rest of us to save more/spend less etc.

"However, none of these steps can be taken in isolation, and we need to identify the issues, work collaboratively and act now to get the process moving," the report says.

And if I live to 100 I might see that happen.

- NZ Herald

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