The University of Auckland Retirement Policy Research Centre released an updated before Christmas in which it reproduced Susan St John’s address to the Financial Services Council on decumulation.

She said the country had a problem because it lacked a simple, secure income insurance option for middle-income New Zealanders.

Schemes such as KiwiSaver were shifting the risks of ageing, such as outliving your money, on to the savers, she said.

“This worrying neglect is happening in the context of rapid ageing. We are already in the sixth year of the 20-year baby-boom retirement. Once the tsunami starts turning 85 from 2030, we will see the true folly of today’s inaction.

“Older people are living longer on average but the real problem is the size of the tail of those who live longer, sometimes much longer, than the average and who need extensive and expensive long term care. As well, rapidly increasing numbers of those over 65 are suffering dementia. Many may be exposed to being exploited financially if they have only a DIY decumulation plan.”

She said Ralph Stewart’s experience setting up Lifetime had shown the time and cost involved in setting up a private annuity option. The government needed to provide more resourcing to retirement policy developments, with more attention on the overseas experience.

“And debate must be more inclusive. We rely on poor surveys and one-sided opinions too much. My own view is that the voices of women are sidelined. For many women managing money after retirement, often when they are on their own is daunting. Knowing how much they can spend each year and not run out of money is critical. New Zealand is unusual in taking a very a hands off approach to decumulation. It is also unusual in its seeming acceptance of a DiY or rule of thumb approach.”

She said the country’s bias towards property as a retirement asset would need radical reform.

The government could also use the success of KiwiSaver and its infrastructure to launch a generic annuity product, overseen by the Financial Markets Authority.

“We could call such a product Kiwi something, eg KiwiSpend and in time it could be an accepted part of the retirement incomes mix. Using the ‘opt out’ experience of KiwiSaver, members could be defaulted into an annuity option with an opt-out provision for a limited time.”

It would provide the same annuity for the same lump sum across men ad women and have low fees, as well as inflation protection.

“The annuity could be linked to average wages/ investment returns and have an add-on insurance for long-term care. For example, retirees with modest KiwiSaver accumulations and other capital on retirement would have the option to purchase annuity of $10,000-20,000 pa with a provision for augmentation once the need for long-term care established.”

St John said KiwiSaver providers would have a role with the possible use of the NZ Superannuation Fund to underpin the longevity and investment risk.

“The state would also have opportunity to make the purchase of such annuities attractive. In contrast to tax incentives for accumulation common in most OECD countries, subsidies for decumulation for a limited annuity can be well-designed with clear social benefits in sight. The costs of subsidies would be limited by a cap on the size of annuity that could be bought.

“Nothing will happen until the social and personal value of annuities to middle-income people is more widely appreciated. There is much work to do.”