Pension attention: Retirement commissioner Diane Maxwell on saving and planning for the future
Retirement commissioner Diane Maxwell dishes on the savings gender gap, how tradies are way ahead of the game, and why she taxes her daughter’s pocket money.
?Did you have misconceptions about retirement before you took on the role of retirement commissioner?
I now have a much better understanding of the challenges ahead. I started to understand the numbers better, as well as the complexities and challenges. Last year we did a report to government [Focusing on the Future] and at first glance there’s a lot of jargon. You’ve got to clear your way through that because behind it are some really simple principles. What does one generation owe the next one – and what’s fair? I had to do some intensive work to get myself up to speed, and once I understood the numbers, I did get something of a fright.
Because it’s such a dire picture?
There’s a problem in using the word ‘dire’ and there’s not too much value in frightening everybody, because when people get too frightened they just go into inertia. Frightening people isn’t what’s going to get them to take action. The biggest challenge is to get them to start young. It’s a slow build, it’s little and long.
The challenge for us is that ‘little and long’ at the moment is not a particularly exciting message. At the moment things are very much about instant gratification. The younger generation think they’re going to get rich quick – they’re going to build an app that will sell millions of downloads, they’ll film their cat playing the piano, it will go viral on You Tube, that there are all these ways to get rich quick.
What is the research telling you about the bigger picture?
By mid-century, one in four of the population will be over 65. We did focus groups and spoke to tradies [tradespeople] in particular, because I was interested in this idea of what do you do if your job is physical. The response was universal. I have to tell you, they were quite a financial bunch – I had full admiration for the way they got themselves sorted.
For them, the problem starts at 50. The question of retiring at 65 versus 67 is neither here nor there, but they don’t want to be on the tools at 50. They want to have some young bloke beside them who’s 25 and gunning it. They’re changing the income model long before 65. They’re looking to set themselves up as running a team, or shifting careers to get an income somewhere else. They hit the retirement problem much sooner.
In the report, we recommend that some of the savings and shifting the age and other stuff should be rediverted into benefits. If people physically can’t continue to work then they could qualify for other benefits that would come in and assist them in that period.
Where does Kiwisaver need to go next?
It’s a great way of harnessing people’s inertia. I’m in favour of harder soft compulsion – finding more points to enrol people – but I’ve stopped short of compulsion. For example, the government has talked about an order enrolment day where they would enrol everybody who’s currently employed. That would cost a significant amount of money. Obviously, with the $1,000 on the way in and the member tax credit, it would be quite feisty.
The bottom line with Kiwisaver is that it has government money going in and employer money going in. For that reason, it’s a smart move for a lot of people. If someone genuinely believes that they have a cunning plan and that their cunning plan is better than Kiwisaver, possibly they’re not going to get employer contribution, possibly their input would be more erratic and they wouldn’t get the member tax credit and particular things, then they’re fully at liberty to make the most of that cunning plan. A proportion of those people, the outcomes may not be as good for them as they thought.
What about the retirement gender gap?
This is really important. Women reach retirement with less money. There are a number of reasons: They choose careers that are lower paid; even if they choose a career they often earn less than their colleague doing the same job; and they take time out to have children and in that time out they lose salary. They’re also risk averse, and with risk comes reward. Often women run a very low-risk portfolio, which doesn’t yield the same returns. Research shows that they’re very good at day-to-day budgeting but don’t make longer-term decisions.
Also, the research shows that if they’re scrimping to pay for things, they’ll look at what they can stop doing or having whereas a man will say ‘how can I earn more?’. He’ll take a more highly paid job, negotiate a salary increase or look at another revenue stream.
A woman will stop doing something or buying something. There are lots of interesting gender differences. The other really sad thing is that women in the financial literacy states come up much lower. It’s depressing and there’s no one silver bullet for that lot. Ultimately school and parents can play a role.
I’m teaching my 12-year-old daughter all sorts of stuff. Heaven help her employer when she comes to negotiate her salary, she’s going to be a pain in the neck. I even taxed her pocket money for a while so she understood how tax worked.
What did you do with the tax?!
It went towards her having her washing done and power and utilities and food and petrol. Also I talk to her about her value as an employee and how you negotiate your market value, about choosing a career that has a reasonable income if that’s what she wants. Plenty of people say it’s not a big driver for them but she’s got high ambitions of what she’s going to do and if that’s the case you need to choose a career that reflects that. You need to have a career that accommodates having kids without losing too much and thinking about saving from young. Schooling, parents, media have a lot to play a part in this.
Also, what I want women to stop doing is calling on the universe to help them. I did focus groups for 10 years when I was a policy researcher and a consumer strategist and a number of times I heard women say that the universe would provide. It was astounding. I have a very good friend who is a very smart woman who, when she was selling her house, said to me, ‘The universe has brought me a buyer’ and I said ‘No, the market has brought you a buyer and you get your calculator out and you work out whether it’s a price you’re prepared to sell at’. You’d be amazed at the amount of women who say that.
We had someone, our nanny actually, when she left the job I said, ‘What are you going to do next’ and she said, ‘I believe the universe will provide’. I’ve never encountered men saying those things quite so much. I’m sure some of them believe it but women are far more prevalent. Some women do need to think about how they think things are going to work out for them, interrogate things, ask questions, believe they should know the answers, believe they have a responsibility to know the answers and take action.
Is the gender gap one of the big issues for you in this role?
I’m passionate about women getting themselves in good shape for retirement. I’m going to work really hard. You’ll notice a lot of what I’ve been doing has been in plain English and I’ve tried to keep it interesting. I talk about myself and my family and I’m trying to turn it into something quite interesting. For quite a while there has been a number of men on this subject and it’s been rather dry.
How do you make the issue of retirement savings interesting and accessible to people?
Taking the jargon out of it. It doesn’t need to be quite so mystical. We did videos with people from the focus groups, just stuck them in front of a camera and said, ‘Tell me about your retirement’. They were just normal people talking about some successes and failures and fears and thoughts.
One of the fears people have is the idea that saving for retirement is like giving money to a stranger, because they think they’ll be someone different, but they won’t. They’ll just be the same person, only older. You’ll think you’re the same person. If you like having a drink now and going out, you’ll like that when you’re retired.
The minute that clicked for me I started playing mental games with myself. Sometimes I say to myself, rather than doing something now, I’ll buy that for myself when I’m older. Rather than having a bottle of wine now, that’s a bottle of wine put aside for when I’m not earning. Rather than having a coffee in a cafe? now, I might say I’ll donate that coffee to myself when I’m 70.
Are you seeing employers resist the contribution obligation?
More and more employers are going down the total remuneration package route. Their view is that this job comes with a certain salary and you choose how much of that salary goes into Kiwisaver. It’s growing. My concern would be if it’s reduced people’s likelihood of getting into Kiwisaver. But ultimately the idea is to negotiate a salary and include within it your Kiwisaver ambitions, whatever they might be. My employer doesn’t pay Kiwisaver.
Really? Oh, the irony …
It will be interesting going forward. I think people probably don’t understand enough about it. I have specifically gone and spoken to some employers about it to understand it better. Their view is that they will negotiate a salary with someone and within that they then make a choice about what they want to do with whatever the discretionary money is. It’s not that the person is getting less because the employer’s not paying, but actually that amount should be included in that salary.
Is there a mental or social benefit there with Kiwisaver too?
When I did the focus groups last year, one of the biggest pluses of Kiwisaver is the way it makes people feel about themselves. I interviewed a number of low income people, one guy was doing shift work at Countdown and had $9,000 in his Kiwisaver and he was incredibly excited about it. Do you know what it did for him? It changed him from being that loser that doesn’t save or can’t save to that guy who’s got $9,000 in his Kiwisaver account.
So the benefits went well above and beyond the dollar sum. It made him feel differently about himself. He started talking about maybe owning a home and using that for his house deposit. Suddenly he had plans. He had a vision of where he might go.
To that end, there’s a small group who can’t afford to contribute to Kiwisaver, there’s also a larger group who would say they can’t afford to contribute to Kiwisaver but would happily blow $5 on a coffee, $25 on eggs benedict and a coffee, or $20 on a bottle of wine. There are people who could contribute but feel that things are tough.
It does need to be recognised there is a small group for whom it’s not possible because they can just get through the week and they can just pay the bills and feed and clothe the children. It was recommended that we take the minimum contribution up from three percent and we said no. If we did that, that group would drop out. We even thought about proposing a one or two percent contribution rate so that Kiwisaver Lite was a way of getting people in.
What about starting a business or paying off your mortgage a bit sooner?
The problem is that for every person who successfully does that, there are 10 who intend to do that but they end up getting lost on the way to the bank. The point about Kiwisaver is that it harnesses inertia. It ropes you in, you forget about it, it ambushes your pay before you see it and it gets you into a good habit without you having to do much about it. That’s why it works.
What does retirement look like for you?
I’m going to keep working for quite a while because I enjoy working. I read an article in The Economist citing a study where lots of people said their preference would be to work a bit and to go into a gradual retirement over time – they wanted to ease out, not bail out. I’d quite happily keep on working until I’m 75, that’s my intention. I’m fit and healthy. Then I want to have more time, I want to travel and see my family in Britain, spend more time with my children and my partner and do all the things I love doing now, which is sitting somewhere with a glass of wine and a meal or hanging out with the family at the beach.