This paper aims to provide background information for those conducting the 2013 review of New Zealand’s retirement income and for New Zealanders who wish to participate in the consultation processes.
The retirement experience is influenced by how well prepared retirees are, how they expect to be treated, and how they are treated. Global trends will impact both how well prepared retirees are and how they are treated.
The story begins with global trends related to economic growth, affected by technology and environmental constraints. Health, population, society and politics trends are summarized.
Potential unemployment from technology and capital efficiencies combines with the risk of environmental constraints reducing well-being growth to imply it is risky to extrapolate trends of economic and asset value growth assumptions for retirement income planning.
To explore future possibilities we developed four scenarios. The scenarios were identified based on grouping potential outcomes of the less certain trends and naming the underlying structural dimensions. The dimensions were labeled economic progress and social cohesion.
The four possible scenarios were defined by having more or less of each of economic progress and social cohesion. The scenarios were labeled successful progress, winners v losers, struggling together and falling apart.
Successful progress is the extrapolation from our experiences of the last few decades with economic progress combining with social cohesion. It is a case frequently assumed in retirement income planning.
If economic progress falters and social cohesion falters too then worst case, falling apart, occurs.
As a small participant in an integrated global economy-environment system, New Zealand cannot expect to influence whether global economic progress will continue or will falter during the next 40 years. New Zealand may reduce the effects of global economic risks but will remain exposed.
New Zealand can affect whether there is more or less social cohesion by more or less effort to avoid large inequalities, encourage cooperation and collaboration, resolve conflicts and strengthen communities. If people remain cohesive following economic disappointment then the struggling together scenario would emerge instead of the least attractive falling apart.
The fourth possible scenario is winners v losers where economic circumstances remain strong overall but social cohesion falters. There might be high inequality, weak communities and lack of cooperation.
Alongside planning for the base case or successful progress, New Zealand should be well prepared for growing needs in potentially adverse circumstances. We suggest five retirement income policy priorities to be considered:
- Reduce the expected retirement income gap;
- Diversify systemic and individual financial risk;
- Manage inequality and reduce the number of disadvantaged retirees;
- Encourage individuals to make life choices that improve retirement outcomes; and
- Search for innovations that improve expected retirement outcomes and reduce risks.