A look at recent research

Trish Oakley 
October 2023 

We are now through election season (finally I hear you say) and can focus on the important end - forming a Government and running the country.

That’s no easy job ahead with fiscal pressures and strong competing demands for funds across health, education, welfare, infrastructure and law and order, just to name a few.  Unsurprisingly therefore, KiwiSaver was not a key feature of this election campaign although we note both major parties released policy in relation to the scheme.

It is easy for KiwiSaver to slip under the radar with such important competing priorities, yet cross party support is key to the long term success of this initiative. 16 years in, there is plenty to celebrate, with over 3 million Kiwis starting their retirement journey and around $100 billion saved to date. That doesn’t mean we should stop there and an important reminder as to why has recently been released.

According to a report from Massey University's New Zealand Financial Education and Research Centre, a comfortable retirement in a city requires a savings nest egg of $831,000 for a two-person household, while in provincial areas, the cost is $539,000. These amounts are intended to support a lifestyle that includes travel, dining out, and a higher standard of living, as opposed to a more basic and frugal approach to expenses. This underscores the significant impact of inflation, with rising costs in areas such as food, utilities, insurance, and entertainment increasing the overall cost of living and consequently, the retirement savings goal for KiwiSaver members.

That is why a research report released recently from the Financial Services Council (FSC) is so worrying. Titled Money and you, young people and the cost of living, this report solidified the connection between financial and mental wellbeing as the cost of living played out. 

Critically it also highlighted worryingly low financial literacy, including around the impact of inflation with millennial and the Gen Z generations underperforming against others on some fairly basic financial literacy questions. 

Learning the language of money early to set ourselves up for a better outcome later is one of the crucial changes we need to see in New Zealand if KiwiSaver is to achieve its purpose at law. By way of reminder that is “to encourage a long-term savings habit and asset accumulation by individuals who are not in a position to enjoy standards of living in retirement similar to those in pre-retirement. The Act aims to increase individuals’ well-being and financial independence, particularly in retirement, and to provide retirement benefits.”

How then do we bridge the gap around literacy and get to the adequacy in retirement that the above lump sums indicate are required? Clearly something for the new Government to wrap its head around as it gets its feet under the table and no doubt a review will make its way through the corridors of power and into the public domain in due course. But what should we be looking for as KiwiSaver members and what should the industry champion?

Recent work by the FSC around policy principles to support the financial confidence and well-being of New Zealanders centred on three key themes:

1. Sustainable – it has to be both cost effective for consumers and Government
2. Integrated – less silos, more collaboration across Government and the sector with a holistic view of financial wellbeing arising from the intersection of savings and investment alongside insurance – health, life or general.
3. Aspirational – helping New Zealanders to make better choices for their future.

Nice ambition and sentiment and at the core diminishing the gap between perceived financial confidence and literacy seems vital. Getting in early and embedding it in the school curriculum seems a great place to start and it is encouraging to see that featured in both major parties policy statements. That’s a generational change but investing in financial literacy in our workplaces now seems important too. As employers seek creative ways to strengthen their relationship with employees, having a trusted partner present financial concepts to strengthen capability may be a real value add. Couple this with access to financial advice and New Zealanders should end up in a better place with their finances.

Contemplating the prospect of maintaining a post-retirement lifestyle similar to one's pre-retirement years is something worth thinking about. While policy changes such as increased contribution rates may enhance our prospects in later years in the interim, take some time to think about how you are tracking towards your ‘comfortable retirement’. What further might you need to achieve the standard of living you seek?

You can read more about the New Zealand Retirement Expenditure Guidelines here.

You can read more about the Financial Services Council here.

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