Break the nest egg
Many New Zealanders enter retirement with little knowledge of how to make the right decisions to ensure their nest egg lasts the whole distance – for what can be 30 years for some.
A comprehensive report released by the Te Ara Ahunga Ora Pension Commission examines how people are tapping into their retirement savings and has suggested a series of recommendations to better support the process.
As part of the 2022 Retirement Income Policy Review, the government asked Te Ara Ahunga Ora to gain a better understanding of ‘decumulation’.
Decumulation involves drawing on savings and investments that have been accumulated over an individual’s working life to provide income in retirement.
Information gathered for the report reveals that many people are ‘dozing’ in retirement and are not getting proper advice on how best to manage their nest egg, if they have managed to accumulate one.
Report author and policy manager at Te Ara Ahunga Ora, Dr Michelle Reyers, says a strong theme that has emerged from the research is the need for better guidance on how best to spend savings in retirement. .
“Advice delivered consistently in a simple system creates an environment that supports individual decision-making,” says Reyers.
“It’s really important that the financial services industry work together to use consistent terminology and provide consistent information and guidance for the withdrawal phase of retirement.”
The need for advice to manage the withdrawal phase increases as KiwiSaver balances increase. In 2022, research showed that people between the ages of 61 and 65 had an average balance of $53,579. As more New Zealanders approach retirement after spending more time in KiwiSaver, average balances will increase. This underscores the importance for all KiwiSaver providers to contact pre-retirees at key milestones, such as 55 and 60, to provide guidance on their options.
The research also revealed that an increasing number of Kiwis are choosing to keep their KiwiSaver accounts open after age 65. This represents an opportunity for providers to consider how to make their products more accessible for those who wish to use their KiwiSaver account as a managed direct debit account. retired.
Reyers made the following recommendations:
- KiwiSaver Suppliers must use consistent terminology and provide consistent information and guidance to KiwiSaver Members regarding Direct Debit.
- KiwiSaver providers should contact members at stages close to retirement to provide information and advice on options. Calculators and tools need to be developed so people can understand their savings withdrawal choices and compare options.
- KiwiSaver products should be user-friendly for those using them as a managed retirement account after age 65.
- New Zealand Super should continue to be a key pillar of the New Zealand retirement income landscape as it provides protection against longevity risk (running out of money) and provides fairer retirement outcomes as it is universal and not sexist.