A proposal that would convert KiwiSaver into an income stream in retirement could allow people to pay themselves up to $12,000 a year on top of New Zealand Superannuation.

KiwiSpend would see all KiwiSaver members defaulted into the scheme on reaching 65 with an option to opt out after taking financial advice.

Those who stay in could receive up to $12,000 a year based on their savings and the amount would increase when a person entered a period of high health costs - such as going into rest home care.

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The idea comes from a report prepared by Susan St John and Claire Dale from Auckland University's Retirement Policy and Research centre.

It is up for discussion as part of the three-yearly review on retirement income policy which is currently being undertaken by Interim Retirement Commissioner Peter Cordtz.

Nearly three million people are in KiwiSaver with more than $57 billion in savings. At the moment when a person turns 65 they can take their money out and do whatever they want with it.

Research by the Inland Revenue has found most people take all their KiwiSaver money out upon retirement and use it to ether pay off debt or travel.

Balances are still quite low - the average is around $20,000 - but are growing over time and are expected to become a bigger part of people's financial wealth in the future.

Overseas schemes which drip-feed a regular income to retirees, called an annuity, are common with six countries in the European Union making them mandatory and 15 voluntary.

In New Zealand there is one annuity scheme run by the private sector called Lifetime Retirement Income but take-up has been low.

St John and Dale said the current system put retirees at risk of outliving their savings, inflation, unsuccessful investments, financial exploitation or simply spending the money too soon.


New Zealand Superannuation is the "perfect annuity" because it is a secure basic income for everyone at age 65 that is protected from inflation, keeps up with wage growth, and continues as long as a person lives.

But at $411 per week for a single and $632 for a couple, for many it is not enough for the lifestyle they want, they said.

It also doesn't cover some forms of health care that can become more expensive with age.

They suggest KiwiSpend should be a government-regulated scheme that could help people manage their money until they die.

Cordtz said many people they had spoken to for research said they were worried they would run out of money in retirement.

"An annuity scheme like the KiwiSpend product suggested by St John and Dale may provide members with the peace of mind of a guaranteed income stream in addition to Super.

"With a long-term health care rider, it could also remove a person's future health care costs from families and taxpayers in general."

Submissions on the review are open until October 31 and Cordtz will make his recommendations to the Government in December.

It will then be up to the Government to decide which recommendations it will take on board.