New Zealand's pension system has been ranked 17th out of 52 in a new global comparison. Photo / 123rf
By Susan Edmunds of RNZ
New Zealand’s pension system has been ranked 17th out of 52 in a new global comparison, with a warning that although the country faces questions about covering the cost, it is not the only one.
The Mercer Global Pension Index ranked New Zealand’s superannuation and KiwiSaver combined a B for adequacy – which reflects how much income people receive in retirement; a B for sustainability – which covers how affordable the scheme is; and an A for integrity – how much the scheme can be trusted.
It said the country could lift the score by increasing the level, coverage and tax efficiency of KiwiSaver contributions, as well as raising the age of NZ Super, increasing New Zealand households’ savings and introducing a credit or contribution for people who are off work caring for young children.
“New Zealand is one of the few countries that does not give tax concessions for preparing for retirement,” report author and Mercer partner Tim Jenkins said.
It said New Zealand should also focus on retirement income as the primary purpose of KiwiSaver and improve the decumulation options available to draw down the money when people retire.
The countries with the top-rated systems were the Netherlands, Iceland, Denmark, Singapore and Israel.
While there have been questions about whether NZ Super was sustainable, Jenkins said it was not alone in that. Other countries had even more urgent problems to fix.
Austria, Brazil and Italy all scored an E for sustainability for their schemes. France and Germany had an A for adequacy but a D for sustainability.
Jenkins said New Zealand had improved on every measure in the latest index update, but other countries had increased more quickly.
Sustainability had improved on the basis of economic data published by the IMF that no longer included some of the Covid years.
He said New Zealand was in the top third of the countries surveyed – “just” – with a relatively low score for income adequacy.
The report looks at how much the average wage earner receives as retirement income. It seeks a benchmark of 70% of pre-retirement income.
“NZ Super is okay,” he said. “But KiwiSaver is below average adequacy. It’s voluntary with relatively low contribution rates.”
He said people who were in roles where they were offered a total salary package had less incentive to contribute because they were paying for their employer’s contributions, too.
Lower-income people and those not in work were also being left behind.
Jenkins said thought could be given to decoupling employer and employee contributions to an extent, and introducing a minimum contribution for low-income people.
“To help them accumulate private savings on top of NZ Super… for people who can’t afford to contribute 3.5% or 4%, they don’t get the extra 3.5% or 4%.”
He said as people lived longer, thought also needed to be given to how retirement settings responded.
“If you’re retired for 20 years from 65 that’s very different from 10 years. Countries around the world are starting the debate about whether state pension ages should increase.”
He said adequacy and sustainability could be addressed together by looking at KiwiSaver and NZ Super as a package.
In Australia it is possible to access super savings before the pension age, which allows people to retire earlier if they need to – such as when they work a manual job.
“There is mood for change, and the time is right,” Jenkins said. “KiwiSaver is 18 years old – when there’s a birthday like that it’s time to step back and consider what we could do. The world on Tuesday is different to 20 years ago.”
– RNZ