Why has NZ's pension system fallen down the rankings? Photo / File
Why has NZ's pension system fallen down the rankings? Photo / File
New Zealand's pension system has slipped from 10th position to 15th place in a global ranking index of 43 systems.
The annual Mercer CFA Institute Global Pension Index awarded New Zealand's retirement income system a value of 67.4 out of 100, down from 68.3 a year earlier with a Bgrade rating.
Dr David Knox, senior partner at Mercer and lead author of the study, said part of New Zealand's fall down the ranks was that it had added new countries to the index this year including Iceland which had topped the index, pushing others down the ranks.
"Everybody dropped a place because Iceland appeared."
The four other countries which jumped over New Zealand - the UK, Ireland, Germany and Switzerland - had improved their OECD net replacement rates - the rate at which a person's retirement income is able to match what they earned while working before retirement.
"A number of countries had their net replacement rate adjusted up or down. New Zealand went down slightly, Switzerland, Ireland went up a bit. In the UK it went up significantly because the UK now has something similar to KiwiSaver which wasn't previously allowed for."
He said there were three or four countries with ratings in the high 60s and only a small movement was needed to change the rankings in the ladder.
"I wouldn't read anything material into the drop," Knox said.
"It is not suddenly saying the New Zealand scheme has got worse."
But the report also made recommendations about how New Zealand could be doing better.
Those include increasing the level of KiwiSaver contributions, raising the level of household savings while reducing household debt, introducing a form of tax incentive for voluntary contributions and increasing the focus on the provision of retirement income from KiwiSaver products.
Knox said the KiwiSaver contribution rate was a quite modest 5 per cent compared to the better systems. KiwiSaver has a minimum contribution rate of 3 per cent although employees also receive 3 per cent from their employer.
"Australia is at 10 per cent. But you look at Iceland it is 15.5 per cent and Netherlands is 15 per cent. So you can see that these countries are putting a lot more away for the future than New Zealand."
Dr David Knox. Photo / Supplied
Knox would not be drawn on how much New Zealanders should be contributing to KiwiSaver but said it gave full marks to countries where the contribution rate was at least 12 per cent.
"There is no single answer because it is an average but we think that 12 per cent will mean that most people will be able to save sufficient funds for retirement and that would give them also a little bit of flexibility as to when they retire and how they enjoy retirement."
He said the other thing New Zealand could do was focus on the retirement income that it would generate and not just the accumulation of dollars into a nest egg.
"We have seen the same in Australia. We have been very good at accumulating dollars. We are not so good compared to the other countries in saying well, what will it look like in retirement? What sort of benefit will people get?"
Short-term versus long-term?
Asked if the Covid-19 outbreak had made it difficult for countries to focus on longer-term issues like retirement income Knox said there were always short-term economic or health issues and election issues that governments wanted to concentrate on.
"The problem then there is pensions get pushed down the list every time. And in the end virtually every country has got an ageing population.
"We can't afford to keep putting it to one side. We have got to say - people earning money - the New Zealand superannuation pension from the government is quite generous - but we have got to build on that - that's not enough, people want dignity and a reasonable standard of living in retirement."
Knox said it was not just the Government but all stakeholders that needed to work together on the issue.
"Whether that is employers, policy-makers, superannuation industry, ideally they all are important players and they need to get together and say how can we make the New Zealand system more sustainable, provide better benefits. This is not a quick fix next week, this is something you have to plan out years in advance."
The report also looked at the gender gap when it comes to pensions but did not include any data from New Zealand on this.
Top 10 countries for pension systems:
1. Iceland 2. Netherlands 3. Denmark 4. Israel 5. Norway 6. Australia 7. Finland 8. Sweden 9. UK 10. Singapore
