Savings advocates applaud Labour's savings platform; suggest New Zealanders need to wake up to reality that retirement will be self-funding initiative. Your view?

By Amanda Morrall

A key plank of Labour savings platform, long ignored by New Zealand politicians fearing "political suicide", is being heralded by savings industry players as a brave but necessary step to protect the welfare of this nation's citizens in old age.

However unpopular, raising the age of retirement from 65 to 67  is a reality that New Zealanders, regardless of political persuasion, will have to come to terms with to restore the sustainability of New Zealand Super set to undergo a massive drain down by a crush of retiring Baby Boomer Super, savings industry figures argued.

Former Savings Working Group member Paul Mersi said New Zealanders who opposed to raising the age of eligibility are living in denial.

"If it's political suicide to even go there (making it an election issue) then New Zealanders will deserve what they get," said Mersi.

"People have to be thinking about this issue, you can’t just dismiss it out of hand by thinking that we’ll always be able to keep retirement age where it's at and continuing receiving a well funded pension forever.''

New Zealand Super is currently set at around 66% of the average wage for a couple in retirement.

Along with raising the age of retirement, a move championed for some time by Retirement Commissioner Diana Crossan, Labour is proposing to make KiwiSaver compulsory, to raise employer contributions from 3% to 7% by 2014, and to restart funding the New Zealand Super, the combined effect of which will bolster and fortify savings.(Alex Tarrant and Bernard Hickey carry the details here).

While questions were raised about just how Labour would finance contributions to the New Zealand Super Fund (frozen by National in 2009), savings sector officials uniformly applauded Labour key recommendations.

Retirement  Commissioner Diana Crossan was unavailable yesterday however her office restated its position that it would not comment on any key issues in the run up to the election -- allowing politicians to put their views before the public.

Workplace Savings CEO Bruce Kerr described Labour's adoption of the commissioner's recommendation on age of retirement as pragmatic.

"We think it's politically brave, but give Labour brownie points for recognising the issue,'' said Kerr, further applauding Labour for its proposal to decouple the increased age of retirement from KiwiSaver as a safe guard for those for whom might be financially challenged by the move.

While Mersi acknowledged the NZ Super as it stood was a sacred cow, he said its plan to gradually phase in an increased age of eligibility would mitigate the impact.

"The proposal gives people a good degree of warning. You might have to work a few months longer than you expected but you'll have plenty of time to deal with that.''

In the event of a Labour victory, the party would phase in the age of retirement over a period of 22 years, with two-month age adjustments made annually.

The policy change wouldn't effect anyone over the age of 55 currently and would partially affect those between the ages of 45 and 55.

"So if you’re 45 you have plenty of income and time ahead of you to plan for that,'' said Mersi. "For most people that change shouldn't make a huge issue but is an easy one to scaremonger over.''

The Investment Savings and Insurance Association, representing the managed funds sector, also welcomed Labour's recommendations on savings.

'Ageing population the elephant in the room'

In raising pension age eligibility, ISI chief executive Peter Neilsen said Labour was acknowledging the elephant in the room - increasing human longevity.

"People are living a lot longer. Our children will most likely get to age 80 or 100. We're moving into an environment where it is quite possible people will spend more time in retirement than they were in the workforce and policy will have to change to reflect that.''

While the association hadn't taken a position on making KiwiSaver compulsory, Neilsen said the ISI wanted to encourage as many people in employment to become a member of some savings scheme.

In making KiwiSaver compulsory, he warned that the Government would have to be very clear about defining who and under what circumstances people could opt because of the possibility that some households or individuals living in chronic debt simply could not afford it.

As for raising contribution levels for employers (from National's proposed 3% next year to 7% by 2022), Neilsen said that reflected an economic reality that would ultimately be in the country's best interests to act on.

"Increasing contribution rates to a similar level to where they are in Australian starts a transition to a savings base rather than tax based superannuation arrangement which is better for New Zealand in the long-term.''

On the face of it, the move appears to shift the savings onus onto employers.  In fact the opposite is true.

"It’s a moot point," said Kerr, "We think anecdotally that it’s a minority of employers who are paying KiwiSaver over and above salary. At the end of the day it's a trade for wage increase.''

Of greater concern to Workplace Savings was how Labour's savings plan would impact on alternative employment savings schemes. Labour indicated they would not face any changes as long as they became "KiwiSaver compliant.''

Kerr said he interpreted that to mean that employees invested in such schemes would have to give up the flexibility of a portion of their funds not being locked in to age 65, regarded as one of the strongest selling points for plans outside of KiwiSaver.

"A lot of people in existing workplace schemes will see that as too inflexible. My initial reaction is that they'll need to be considerable investigation into what they mean and how that will happen.''

'Call for bipartisan accord'

Regardless of a Labour victory or loss, Kerr said parliamentarians across the spectrum owed it to New Zealanders to come up with a retirement saving strategy that wasn't subject to the whims of politicians currying favour with the public in exchange for votes.

"It would be great to get major political parties to reach an accord in KiwiSaver and retirement age so they can lock in an approach that's best for New Zealanders.''

KiwiSaver provider ANZ Wealth echoed the sentiment, also emphasising the importance of public input.

"Having a robust retirement savings environment is crucial to New Zealand's economic and social future,'' said ANZ Wealth's managing director John Body.

"The critical thing is for New Zealanders to develop a regular savings habit and to understand more about how and where to invest their money productively.''