New look at savings has upbeat message

Relax! Eighty per cent of New Zealanders within 20 years of retirement are saving enough to keep up at least their current living standards when they retire.

That's the upbeat message from a new measure of personal saving unveiled at a superannuation funds' conference in Auckland yesterday.

The new measure, based on a Statistics NZ survey of 11,500 households, shows that the average household has swung from spending 10 per cent more than it earned in 1985 to saving 9 per cent of its income in 1998.

Saving has dropped back to just over 5 per cent of incomes in 2004, but the average family is still in the black.

By contrast, the only previous measure, based on overall national income data, showed a steep slide from small net saving in the 1980s to massive over-spending of 12.3 per cent of incomes in 2004 and 14.8 per cent last year - the world's worst personal savings performance.

Waikato University economist John Gibson, part of a team analysing the new Survey of Family Income and Employment known as "Sofie", said New Zealand still needed to debate what to do for the 20 per cent of middle-aged people who were not saving enough to maintain their living standards in retirement.

"But we want to have that debate knowing that that is the size of the problem group, rather than driving the entire country to despair," he said.

"There are a number of things in Sofie that would say we are doing better than we thought we were."

He said that if the national income-based savings measure were true, showing over-spending in every year since 1994, the net worth of the average household would now be almost zero.

Instead, initial results from Sofie last year found that people in the pre-retirement 45 to 64 age group had average net assets of $155,800 each.

Using this and other, unpublished data from Sofie, Professor Gibson's team has calculated that three-quarters of couples and five-sixths of singles in the 45 to 64 age group are saving enough to maintain their current living standards when they retire.

Overall, 80 per cent of the age group are saving at least enough, and on average they are saving more than enough - meaning that they could afford higher living standards in retirement than they have now.

Younger age groups may not be doing so well, judging by the falling rate of home ownership, but Professor Gibson said it was premature to say how today's younger people would do by the time they reached retirement.

"The difficulty of doing things with young people is that very little saving is done until your forties anyway, so it's a lot harder to make projections."

He said the traditional national income-based savings measure might be over-stating families' real spending by including non-cash items such as the notional rental value of owner-occupied houses and government spending for families such as health.

The national income data also counted outgo on items such as education, health and appliances as consumer spending, though they might be investments to earn future income.

The new Sofie-based calculations include NZ superannuation, creating a "floor" which means few people now on low incomes will suffer a drop in living standards when they retire.

Many low-income people will actually be better off in retirement if they have paid off their mortgages and own their homes debt-free.

But some who are now on middle and high incomes would need to save more than they are to maintain their current living standards after 65.

Retirement Commissioner Diana Crossan, who will address the conference today, said she was still concerned for those under 45 who could not afford to buy houses.

"When we in the over-45 group bought our houses, we paid three times our incomes on average. They are now paying seven or eight times their incomes," she said.

"What we don't know is how many families are helping their young people to buy homes"