Homing in on Retirement

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Homing in on Retirement

By Mark Fryer, The New Zealand Herald

January 24, 2004

Predictions, they say, are tricky things - especially when they involve the future.

But anyone preparing for retirement can't avoid making a few predictions. The same goes for governments trying to work out how much of the national economic pie will be needed to support the elderly in 20, 30 or 40 years.

Here's one prediction: the New Zealanders who retire 20 or 30 years from now will be very different - economically speaking - from today's retirees.

That's one of the implications of the latest report from the Periodic Report Group, published in the week before Christmas.

The Periodic Report Group, in case it has slipped your mind, is the group that assembles every six years to tell the Government of the day how well people are preparing for retirement, and suggest changes to policies that affect retirement saving.

The part of the latest group's report that got most coverage was its suggestion that more should be done to encourage employers to offer on-the-job savings schemes, in an attempt to arrest the plunge in workplace superannuation.

There were a number of other suggestions too: tidy up the tax system, provide more education and advice on savings, and do more research.
As well as the specific suggestions, the report provides a summary of how well we're preparing for the after-work years. And that's where the comparison between today's over-65s and future retirees comes in.

What's the difference? Quite a few things: future retirees are likely to stay that way for longer, because life expectancy is rising, they're more likely to have been through a relationship breakup and they're more likely to be Maori or Pacific Islanders. And, they're less likely to own their own homes.

That last difference could have a big impact. At present, the great majority of retirees live in their own homes, mortgage-free. One of the background papers for the Periodic Report Group, prepared by the Institute for Research on Ageing, quotes figures from the 2001 Census which show that 72 per cent of people aged 60-plus lived in a mortgage-free home.
In a similar vein, a Ministry of Social Development survey found that most older people own their own homes (68 per cent of single people in the survey and 86 per cent of couples).

Most of the older people who owned their own homes had no mortgage. As a result of that high level of home ownership, the survey found, older people's accommodation costs tended to be low.

Just as well, since research on the living standards of the elderly has also found that owning your own home, without a mortgage, is one of the key factors in deciding whether retirement is reasonably comfortable or a constant struggle.

New Zealand's high level of home ownership is one of the reasons that the Periodic Report Group can say the present superannuation system works "reasonably well for the currently retired and those approaching retirement", though it says the picture is less clear for people further from retirement.

None of this is exactly rocket science. New Zealand Super (at present $377 a week after tax for a couple, $245 for a single person living alone) may be enough to keep the wolf from the door but even a modest rental or mortgage payment won't leave much over. Especially not when the vast majority of retirees get by on Government super and little or nothing in the way of private income.

The catch is that home ownership is declining, and not just as a result of the heated home market of the past few years.

Statistics NZ says the last three censuses have shown a fall in the home ownership rate.

In 1991, 74 per cent of households lived in a home that they owned, with or without a mortgage, but by 2001 the figure was down to 67.8 per cent.
As the report says, "the emerging trend for future cohorts of older people is of reduced home ownership, particularly for those with low incomes".

This fall, it says, reflects "a complex mix of social and economic factors, including a shift in consumption away from housing, later marriage and an increase in the number of single people, increased mobility and the reduced affordability of houses for low-income families".

Before the elderly get too smug about the younger generation wasting their money on coffee and CDs, instead of saving for a home, one of the background papers prepared for the Periodic Report Group points out one of the reasons why so many of today's retirees have mortgage-free homes: from the 1930s to the 1970s, Government housing policies encouraged home ownership by providing subsidised loans.

Whatever the reasons for falling home ownership, if the trend continues it will mean that future retirees will either have to accept lower living standards, or save enough in financial assets - money in the bank, shares, superannuation etc - to allow them to pay the rent or the mortgage.

There's not much sign of that happening. Household financial assets may have grown by 39 per cent from 1990 to 2000, but financial liabilities grew by 129 per cent over the same period.

While the report doesn't suggest doing anything about falling home ownership, apart from more research, it says "a continued decline in home ownership without an increased alternative asset accumulation would be a cause for concern in the future".

What all this means for future governments is still uncertain, but the message for individuals is clear: get on the home ownership track, get the mortgage paid off or, if you don't, either save enough to handle rental costs or get ready for a less than golden retirement.