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Mercer on Budget: retirement shortfall must be addressed

Roadmap to surplus welcome, but retirement shortfall must be addressed: Mercer’s Budget Response

24 May 2012

Mercer has welcomed the Government’s Budget, designed to bring New Zealand back to surplus by 2014/15, but is concerned about its failure to address looming shortfalls in retirement savings.

Head of Mercer in New Zealand, Martin Lewington, said that charting a roadmap to Budget surplus will send a strong and positive signal to investors, and could help to stem New Zealand’s record number of people leaving the country.

“Shooting for a surplus is a good thing, we need surpluses to put us in good stead, and it gives gives the Government the opportunity to pre-fund NZ super and put some aside for a rainy day to mitigate the fiscal time bomb that’s ticking away,” Mr Lewington said.

“A planned Budget surplus will demonstrate that New Zealand has a well-managed economy and responsible Government, which is important for attracting strong local and foreign investment.”

He added: “Fostering a healthy economy is also important for retaining home-grown talent in New Zealand. The longer our economy underachieves and our unemployment rate remains high, the longer we will watch Kiwis heading to Australia and beyond, for what they see as greener pastures.”

Mercer welcomed the Government’s focus on increased productivity and employment opportunities saying CEOs can also play a role in encouraging Kiwis to look closer to home for career opportunities.

“Business leaders need to act as advocates for the strength of New Zealand’s economy and highlight the employment opportunities on offer here at home. Younger workers and aspiring managers look up to CEOs and senior executives for advice, mentoring and career development, so they are in an ideal position to generate the message that New Zealand is a great place to work and live,” Mr Lewington said.

Mercer also said the Government’s continued support of the KiwiSaver scheme was a step in the right direction.

“With KiwiSaver set to mark its five year milestone in July, it’s important that New Zealanders continue to have confidence in the scheme and in their retirement savings. Government tinkering can erode this sense of security and trust, so we are pleased that policy makers have continued to show their confidence in KiwiSaver,” Mr Lewington said.

However, Mercer is concerned the Budget fails to address the looming issue of retirement funding.

“Mercer is disappointed the Government has deferred KiwiSaver auto-enrolment and will consult once the budget returns to surplus.” Mr Lewington said.

The Government highlighted in today’s Budget that approximately 15,000 people are joining KiwiSaver every month.

“Clearly there is public support for the Scheme and the more people who are in KiwiSaver, the less reliance on the Government. Any deferment of auto-enrolment inevitably means there’s a group out there who will be missing the benefits of KiwiSaver,” Mr Lewington said.

“There is urgency to help New Zealanders recognise the benefits of building private savings today, to ensure a comfortable retirement tomorrow,” Mr Lewington said.

“But despite widespread discussion about the anticipated fiscal problems of funding NZ Super, the Government can do more to address the issue and find real solutions now and signal their implementation well in advance,” he said.

Projections by Statistics New Zealand indicate that by 2051 those over 65 will comprise more than a quarter of the total population and with life expectancy expected to continue to increase.

In line with this ageing population, the net cost of providing NZ Super is expected to double by the year 2060 (from 3.4% of GDP in 2007 to 6.9% in 2060).

Mercer argues that any solution needs to consider three important strategies for the pension system: increasing the age of eligibility for NZ super, review its universality and increasing minimum contributions to KiwiSaver over time.

“It’s positive to see the minimum KiwiSaver contribution move up to 3% of wages from 2013 (although the benefit of this is offset by the introduction of contributions tax on minimum KiwSaver contributions), but that should be a starting point, not an end point. In the long term, we need to see Kiwis start to save at least 12% of their salaries in order to have a comfortable lifestyle in retirement,” Mr Lewington said.

According to the latest KiwiSaver Sentiment Index, released by Mercer, the majority of Kiwis are contributing either 2% of salary (41%) or 4% of salary (44%), while only 6% are putting away 8% of their salary.

Findings in the KiwiSaver Sentiment Index also pointed to concerns around funds’ performance and fees and thus as a KiwiSaver default provider, Mercer believes the terms of reference review planned by the Government around default providers will help address this.

“Any review should be welcomed by the default providers and KiwiSavers,” Mr Lewington said. “Improved KiwiSaver disclosures may encourage people to join KiwiSaver of their own accord.”

Mercer also pointed out the important role employers can play in supporting KiwiSaver and boosting interest among employees.

“The KiwiSaver Sentiment Index found that 1 in 4 New Zealanders look to their employers for information on KiwiSaver, putting them in an ideal position to educate staff and generate support for the scheme. Whether it’s including KiwiSaver updates on the company intranet, or hosting KiwiSaver workplace seminars, there are a range of ways employers can boost interest in retirement saving and planning,” Mr Lewington said.

About Mercer

Mercer is a global leader in human resource consulting and related services. The firm works with clients to solve their most complex human capital issues by designing and helping manage health, retirement and other benefits. Mercer’s 20,000 employees are based in more than 40 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 52,000 employees worldwide and annual revenue exceeding $10 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. For more information, visit Follow Mercer on Twitter @MercerInsights


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