National strategy for National strategy for financial literacy - - - PowerPoint PPT Presentation

National strategy for National strategy for financial literacy

• the New Zealand experience

1 4 July 2 0 1 0

Outline Outline

• New Zealand relatively simple environment
• Mostly TTE: ‘hands-off’ government approach
• Implications of KiwiSaver on behaviour
• The Retirement Commission – history and

current strategy

• The withdrawal by employers?
• The ‘National Strategy’ – surveys of financial

k l d knowledge

• Lessons from New Zealand

NZ pensions landscape : Tier 1 pe s o s a dscape e

• ‘New Zealand Superannuation’

– Universal (modest residence requirements): no income or asset tests – Taxed as ordinary income Taxed as ordinary income – State Pension Age is 65 – Non-contributory and was purely PAYG – Relatively generous – Linked to average wages Virtually eliminated age poverty – Virtually eliminated age poverty

• No Tier 2 (compulsory saving)

NZ pensions landscape : Tier 3 pe s o s a dscape e 3

• KiwiSaver (since 2007): national, auto-

l t t t d fi d t ib ti enrolment, opt-out, defined contribution scheme, tax-subsidised (0.6% of GDP)

• All other saving

‘tax neutral’ (TTE)

• All other saving – tax neutral (TTE)

New Zealanders’ response? e ea a de s espo se

• Probably saving ‘enough’ for retirement
• Retirees relatively happy
• Little financial hardship amongst 65+
• Relatively high labour force participation rates

amongst 65+ (and rising)

• Debt-free home plus NZS a good base
• ... then we got KiwiSaver

Kiw iSaver Sa e

• Influenced by ‘behavioural finance’ studies
• National; imposed
• Auto-enrolment; opt-out
• Tax-subsidised: ‘free’ money
• Employer matches employee’s contributions

(to 2% of pay)

• Employee picks provider and strategy
• 35% of eligible New Zealanders are members
• Now in third iteration after only three years

The Retirem ent Com m ission e et e e t Co ss o

• Recommended by 1992 Task Force
• Responsible for:

– Financial education so New Zealanders can make “informed decisions throughout their lives” informed decisions throughout their lives – Helping to make government policies “effective and stable” – Helping to ensure the “financial services sector is trustworthy”

• Financial literacy a contributor
• Financial literacy a contributor

Contributors to financial w ell-being

Thriving Efficient & effective regulation – compliance costs i i i d Consumers exercise market power economy – competitive and efficient markets minimised Personal financial wellbeing for New Zealanders Consumer protection for fraud/ scams Diversified market for financial products

“Financial bili ”

Trustworthy financial sector with transparent & Financially capable & services

capability”

• nly a part

with transparent & plain language

• fferings

S ecurity net welfare provision population

‘Sorted’ a m ajor initiative So ted a ajo t at e

www sorted org nz www.sorted.org.nz

Retirem ent Com m ission - research et e e t Co ss o esea c

www.retirement.org.nz

National Strategy for literacy at o a St ategy

• te acy
• ‘Network for Financial Literacy’
• http: / / www.financialliteracy.org.nz
• Led by the Retirement Commission
• “...a range of tactics for improving financial

literacy”

• Involves public and private sector
• Financial Knowledge Surveys – 2006 and 2009
• 2010 Ngai-Tahu Financial Knowledge Survey

Financial Know ledge Surveys a c a

• edge Su

eys

• Face-to-face; 60 minutes; 850 in national

l samples

• “Knowledge scores” obtained covering:

M th ti l d t d d lit – Mathematical and standard literacy – Financial understanding – Financial competence Financial competence – Financial responsibility

“...significant improvement in New Zealanders’

• verall financial knowledge...”

Know ledge com parisons 2 0 0 6 -2 0 0 9

• edge co

pa so s 0 0 6 0 0 9

Lessons from New Zealand esso s

• e

ea a d

• Public pension policy generally of first importance:

– Relative strengths of each player – Simple Tier 1 (govt.) – Get rid of tax breaks (govt ) – Get rid of tax breaks (govt.) – Question role of compulsion (govt.) – Move from DB to DC schemes (employer) ( p y ) – ‘Total remuneration’ preferred to ‘Pay + benefits’ (employer)

I f ti d i ti f i ( ll ti )

• Information needs require satisfying (all parties)
• Financial education (govt., employers)

.... in conclusion

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