16 Jul 2013

Call to look at mandatory retirement annuities

8:43 pm on 16 July 2013

A business group is calling for debate on compulsory annuity payments in retirement.

It follows a recent survey by global accounting body CPA Australia, which shows many Australian retirees are using lump sum payments as a windfall to pay off their debts.

The New Zealand country manager of CPA Australia, David Jenkins, says Australians are taking on excessive debt and making risky investments heading into retirement, thinking they can pay them off with their superannuation.

He warns KiwiSaver could lead to similar spending patterns for New Zealanders.

Mr Jenkins says New Zealand should investigate compulsory income streams in retirement to avoid the "lump sum as windfall" mentality. He says the idea of KiwiSaver was for people to self-fund their retirement and lessen the burden on the taxpayer.

A survey by Workplace Savings New Zealand showed that 21,000 people had taken lump sums out of their KiwiSaver accounts, Mr Jenkins says.

Although people can argue it's their own money, he says there's a need for "robust conversations" to educate people about how super should be taken out on retirement and the country needs to seriously look at annuity payments.

"It would be a weekly or monthly income stream that comes in from the super, that's taken off, rather than one lump sum payment that's taken outright."

The Commission for Financial Literacy and Retirement Income has welcomed the call for a debate on compulsory annuity payments.

Research manager Malcolm Menzies says there is need for some kind of annuitisation, otherwise KiwiSaver will not achive its purpose. Dr Menzies says the questions that need to be considered are whether it should be compulsory or voluntary, or total or half annuitisation.