A combination of Kiwis living longer and large numbers of baby boomers retiring in the next two decades means the country needs to consider a new retirement option, warns the Financial Services Council.

On average, New Zealanders reaching 65 are living an extra two years longer each decade, according to a report from the lobby group.

Its report says 52 per cent of females born in 2011 will live to 100, while 44 per cent of males will also reach this age.

"While in the past people lived 15 to 20 years after retiring, this could now lift to 30 to 40 years," said the Financial Services Council (FSC).


This, together with many baby boomers approaching retirement age, means our current NZ Super will become unsustainable.

Based on its report, the FSC said it was about to launch "new retirement income policy options".

It wants New Zealand to debate "building something better on top of its current New Zealand Superannuation aged pension and KiwiSaver schemes".

Council chief executive Peter Neilson said that assuming eligibility for NZ Superannuation stayed at age 65, the cost of paying the pension would double to 12 per cent of national income - as a percentage of GDP, by the end of this century.

If this happened, then current tax rates would need to go up by 28 per cent. If the current form of National Superannuation was maintained for younger New Zealanders later this century then current entitlements would have to change.

"The extra tax burden of maintaining NZ Super access at 65 as the population lives longer means the tax burden may also be unacceptable to future taxpayers."

Neilson said it did not appear the mix of a low tax rate and early eligibility that had made NZ Superannuation attractive up till now could be maintained into the 21st century.

"We need to discuss what is happening to longevity, what we can afford to fund from taxation, what should happen to the age of eligibility and if more reliance on private saving would help."


Savings could be a more efficient method of funding retirement incomes than taxes, the FSC suggested.

The country needs a retirement savings system "which can allow those under 40, and future generations, to nearly double their retirement incomes through their own savings", Neilson said.

Of 2558 adult Kiwis surveyed last year, only 10 per cent believed believed NZ Super would pay enough to allow them to live comfortablty in retirement.

The FSC-commissioned survey showed 80 per cent feared their savings would run out before they died and 62 per cent thought they were not saving enough for retirement.

Neilson said the FSC is not specifically pushing to keep the retirement age static, but simply wants to ensure the option remains for those Kiwis who do want to stop working at 65.

One of the issues next week's report will discuss is life annuities, which has not been a well-developed market here, Neilson said.

"New Zealanders don't like the idea of giving up a large amount of cash with the promise of getting a return from it."

The FSC, whose members manage almost $80 billion in savings, will release its policy option suggestions on June 17.