retirement.org.nz

Much of the Retirement Commissioner’s strategic work takes account of trends and possible long term future scenarios. This section of our Statement of Intent focuses primarily on issues and influences that are relevant to our work over the next three years, but also the longer term. Many of the higher level trends, such as demographic change, are being addressed in specific streams of our work.

The wider environment

New Zealand’s society is changing and ageing.

We are all getting older on average...

The median age has increased from 26 years in 1971 to 35 in 2005 and is expected to reach 40 in 2020.

The old will be getting older…

In 2005 the oldest 10% of the population is 68 and older and in 2051 it will be 81 and older.

There will be fewer work-aged people compared with older people…

For every person aged 65 and over, there will be 2.2 people in the working age group (15-64) by 2051 compared with 5.5 people in 2004.

(Source: Statistics New Zealand, National population projections, 2004)

Other relevant trends include the increasing ethnic diversity of the population and the trend towards more people 65 and over who have paid employment.

Already, the number of working Kiwis classed as 'older workers' (aged 50 - 64) has more than doubled between 1991 and 2005. 

(Source: Labour Department, Older People in Work: Key Trends and Patterns 1991 – 2005)

For many in this age group, the word 'retirement' is outdated. Some will want to stop work earlier, but others will want to keep working well into their 70s or older.

These trends present a wide range of often complex implications for personal, institutional and government decision making about retirement issues. Accordingly the Commission makes a considerable investment in research and analysis to inform our planning for the future and the information we provide to the public and stakeholders.

Other trends and issues that may hold long term implications include:

• Increasing personal debt levels, such as student loans and credit card debt.
• High levels of consumption expenditure.
• People buying homes later in life.
• International employment opportunities and patterns.
• Changes in career patterns and workforce participation.
• Individuals taking early retirement and starting part-time or other paid work.
• Women having children later.

The future direction of these trends may also be affected by other factors such as levels of migration and the relative and absolute economic performance of the nation. These factors will in turn be influenced by global policies and events.

The long term concern will be how can New Zealanders – individually and collectively – pay the price necessary to fulfil future retirement aspirations? We expect the range of retirement income sources to remain broadly the same (that is, from the government, privately-funded investments and workplace superannuation), but the balance between these sources might change.

In summary, we can forecast with some confidence that, in the longer term future, New Zealand will have an older and more diverse population that displays more varied patterns of paid work, both in the conventional working age and retirement age groups. People are likely also to have higher expectations of what is an acceptable standard of retirement living.

Our immediate operating environment

The focus of the Retirement Commission's work is on helping New Zealanders become more informed and skilled at managing their personal finances.   This is based on the view that the quality of a retired person's life will depend significantly on his or her standard of living and most significantly, that the retirement income a retired person receives will largely determine this standard.

We make some fundamental and important assumptions about this operating context, and if change did occur (for example, in the government’s retirement income policies) then this could have an impact on our work.

Our key operating assumption is that the sources of retirement income and government retirement income policy will continue to be reasonably stable and that a high level of political consensus on this policy will be maintained.

Participation in work-based superannuation savings schemes has declined from 22.6% of the workforce in 1990 to 13.89% in 2003 (Report of the Government Actuary for the year ended 2005).  A major government initiative aimed at reversing this trend is the KiwiSaver scheme announced in the 2005 Budget, and available from 1 July 2007. This is a portable workplace-based savings scheme that is generally intended to provide a lump sum contribution towards retirement and access to funding of a first home deposit.

In October 2006 the Retirement Commission launched a three year workplace financial education programme. The objective of the programme is to help New Zealanders make decisions on their participation in KiwiSaver, or other savings options, in the context of their wider personal financial situation.

The need to make a personal decision around KiwiSaver provides a compelling incentive for individuals to appreciate the need for and to absorb personal financial information and education. The programme reminds New Zealanders that they can and should be making financial preparation for the future.

Future situations or events that could affect our operating environment include:

Rising personal debt levels: Concerns have been expressed by the Reserve Bank and others about the sustainability of current levels of consumption and related household debt. While asset values may have risen, the critical issue is whether the wider community retains its tolerance of debt levels relative to income expectations.  A sudden reversal of this community tolerance would impose strains on the financial system.

Fall in house prices and values:  House prices have increased dramatically over the past few years and if values drop, the equity of some households would be reduced or perhaps eliminated and even replaced by debt.

Loss of the current political consensus about the government's ongoing commitment to funding retirement incomes: This continuing consensus might not be assured in the future.

Performance failure in the financial sector: Commercial failures or perceived unethical practices could undermine efforts to build the public's trust in the sector.

Rising living standards:  With economic transformation we expect future generations to have higher retirement income expectations, as standards of living increase.  However, there will always be some people on lower incomes who have difficulty reaching the standards of living others enjoy, and difficulty making provision for their own future.