nzfc kiwisaver v1 · page%2! introduction*! like! many! countries,! new! zealand! has! concerns!...

KIWISAVER: CONSUMER CHOICES

Claire Matthews

School of Economics and Finance Massey University

Private Bag 11-‐222, Palmerston North, New Zealand 4442 Ph +64 6 3569099 Extn 2329 [email protected]

This Draft: February 2012 Abstract KiwiSaver is a central government initiated and supported retirement savings scheme

launched in New Zealand in 2007. With nearly half of the country’s population having

subsequently joined the scheme, many of whom had no prior retirements savings, this

study seeks to understand the choices made. The data is from an online survey of 1000

New Zealanders commissioned for this study and conducted in mid-‐2011. The key

findings include evidence of a lack of real analysis of the options available, with the

choice of provider and fund driven by convenience, as well as reluctance to use financial

advisers, and a lack of knowledge by individuals about their membership. The choices

made are influenced by age, gender, education, income and employment status.

Keywords: Retirement savings; Investor behaviour; New Zealand JEL Codes: D12; D14; E21; G11; G23 The survey was funded by the Financial Services Institute of Australasia, and supported by the Institute of Financial Advisers, which is acknowledged with appreciation.

Introduction Like many countries, New Zealand has concerns related to its aging population,

including the level of personal savings available to help fund individuals’ retirement.

While there is a universal benefit available from the age of 65, the standard of living

provided by it is quite modest and personal savings are desirable to supplement the

benefit. In 2005, the government introduced KiwiSaver as part of a package designed to

increase the savings rate in New Zealand. The legislation enacting the scheme was

passed in 2006, enabling the KiwiSaver scheme to be become operational on April 1st

2007. Since the commencement there have been two sets of changes to the scheme,

both by a subsequent government, but the fundamental structure of the scheme has

been retained.

KiwiSaver is a work-‐based savings scheme, designed to encourage participation.

Membership is not compulsory at this stage1, but anyone aged 18 years or older who

commences a new job with a new employer will be automatically enrolled in KiwiSaver.

The new employee may subsequently choose to opt out of KiwiSaver, but only has a six-‐

week window in which do so commencing two weeks after starting the new job. Others,

including the self-‐employed and non-‐employed, may elect to opt in to KiwiSaver at any

time. For employees, contributions are deducted at a minimum rate of 2%, but rates of

4% or 8% may be chosen instead, and their employers must make a matching

contribution of at least 2%. As a government-‐initiated and supported scheme, there are

also a series of government incentives, including a $1000 kick-‐start for members joining

for the first time, and an annual tax credit relative to member contributions. Early

withdrawal of contributions is possible in some circumstances, including for the

purchase of a first home2 and severe hardship.

The first changes were introduced in late 2008 and included a reduction in the minimum

employee contribution to 2% (previously 4%), and capping the increase in the

compulsory employer contribution at 2%, as well as removal of the annual subsidy of

1 Changing KiwiSaver to a compulsory scheme was one option canvassed during the 2011 election, and continues to be a matter for discussion. 2 There are conditions attached to withdrawals for a home purchase, including that it must be for a first home and a minimum of five years of KiwiSaver membership is required.

scheme fees of $40. The more recent changes were introduced in the 2011 budget3 and

include an increase in the minimum employee contribution to 3%, with a similar

increase in the minimum compulsory employer contribution to 3%, and a halving of the

member tax credit to 50 cents per $1 of contribution to a maximum of $521.43 per year

(down from a matching $1 tax credit to a maximum of $1042.86).4

This paper explores New Zealanders’ attitudes and behaviours related to KiwiSaver and

retirement savings more generally.

Prior Research Much has been written about the need for individuals to save for their retirement and

doubts have been raised about the ability of social security systems in many countries to

provide the level of financial support that retirees need. It is also suggested that

inadequate financial resources in retirement will have a substantial effect on one’s

health and welfare (Howlett, Kees and Kemp, 2008). As Oehler and Werner (2008)

explain, “demographic changes, tight public budgets, and reduced generosity of

occupational pension plans shift the responsibility for an adequate retirement provision

towards the individual” (p. 253). One of the outcomes of this shift to individual

responsibility is that it also shifts responsibility for asset allocation and investment risk

to the individual (Fernandez-‐Lopez, Otero, Vivel and Rodeiro, 2010).

Consumers can choose to supplement expected social security payments and enhance

their retirement through the use of personal retirement savings. An attractive savings

option is a scheme where the consumer’s own savings are matched by contributions

from his/her employer. In the US this takes the form of 401(k) plans, while the

KiwiSaver Scheme in New Zealand also features employer contributions to members’

savings.

3 The 2011 changes have not yet been enacted in legislation, but this will occur in early 2012. 4 The summary of the KiwiSaver scheme and the changes made in 2008 and 2011 is necessarily brief and incomplete. Full details can be found at the official government KiwiSaver website (http://www.kiwisaver.govt.nz/) or the KiwiSaver section on the Sorted website (http://www.sorted.org.nz/home/sorted-‐sections/kiwisaver).

Choosing to implement a retirement savings scheme requires the consumer to make an

intertemporal choice between consuming today and saving for consumption at a future

time. Such intertemporal choices can be difficult for individuals, with explanations for

that difficulty including self-‐regulation, being an individual’s ability to override

impulses, and future orientation, being the emphasis placed on long-‐term outcomes

relative to short-‐term outcomes (Howlett et al, 2008).

Howlett et al also argue that financial literacy plays an important role in a consumer’s

ability to make good financial decisions, including the need for retirement savings. The

pension schemes of Germany and the UK are explored by Oehler and Werner (2008).

They find that behaviour change can be induced through financial education, in the form

of advice and training. However, the UK example suggests that financial education alone

may be insufficient, and that automatic enrolment may be necessary.

Governments can choose to encourage consumers’ retirement savings. As discussed

earlier, the government drove the establishment of the KiwiSaver scheme in New

Zealand. Hira, Rock and Loibl (2009) note that the US “Federal Government has sought

to increase reliance on non-‐Social Security programs by increasing tax incentives” (p.

293), and they also suggest the Federal Government has been increasingly active in its

encouragement of investment in Individual Retirement Accounts (IRAs).

Oehler and Werner (2008) note that when the responsibility for providing adequately

for retirement shifts to the individual, it requires several decisions, the first of which is

the decision to save and the amount to save. Hira et al (2009) explore the determinants

of these two elements of retirement planning behaviour, in the context of the IRA in the

US. They find that older consumers, Caucasians, users of financial information, early

investors5, and active investors6 are more likely to have an IRA. They also find that

income level is positively related to maximizing retirement contributions, while active

savers7, ex ante researchers, early investors, automatic depositors and those who

reviewed information from the mail are more likely to have maximized their retirement

contributions. 5 Early investors are those who first began investing at an early age. 6 Active investors are those who had been active during the previous 12 months. 7 Active savers were those who had engaged in more saving in the previous 6 months.

Fernandez-‐Lopez et al (2010) provide a summary of empirical research focussed on the

relationship between relative risk aversion and wealth, and literature on household

savings, including retirement savings. This shows that the demographic characteristics

related to savings behaviour and risk aversion include gender, education, income,

wealth, ethnicity, and type of employment. Their own European study finds an inverted

U-‐shaped relation between age and saving for retirement, with the maximum reached by

those in their mid-‐late 40s. They also find a higher level of knowledge is related to a

greater tendency for retirement savings, as does a higher level of income. They note

that the income-‐related finding reinforces the view that “retirement planning is least

pursued by those who need it the most, the economically disadvantaged” (p. 248).

As noted one of the issues for consumers is asset allocation. Holden and VanDerhei

(2010) explore trends in asset allocation in 401(k) plans in the US. They found that at

the end of 2008 more than half of all assets, on average, were invested in equity

securities in some way. In light of recent discussions on the issues in New Zealand,

another interesting finding from their study is that about 75% of 401(k) plans included

lifecycle funds, “designed to simplify investing and automatic account rebalancing” (p.

85), within their investment portfolio.

Research methodology This study uses data collected from an online survey undertaken specifically for this

project. A total of 1001 online interviews were completed in mid-‐2011 by UMR

Research, with respondents restricted to an 18-‐65 age range, being the core group of

interest relative to KiwiSaver. A selection process was used to ensure the sample was

nationally representative, based on geographic location, age and gender. Recruitment of

the online panel members used by UMR Research, from which the sample was drawn, is

primarily offline and by invitation only, ruling out self-‐selection issues associated with

online methodologies.

The online questionnaire comprised 26 questions about KiwiSaver and retirement

savings, as well as six demographic questions. The last question was an open-‐ended

question for general comments from respondents.

Table 1 summarises the key demographic characteristics of the sample.

Table 1: Demographic characteristics of the sample

%8 % Age 18-29 22.2 Qualification No formal qualification 6.1 30-44 37.3 28.2 45-64 40.6

Secondary school qualification

Vocational qualification 19.3 Gender Female 52.7 Bachelor degree 27.2 Male 47.3 Higher degree 14.4 Other 4.9 Ethnicity9 NZ European 78.5 Maori 8.8 Employment Status 54.4 British 5.4

Paid employment (20+ hours per week)

Other European 3.4 10.1 Pacific Island 2.6

Paid employed (<20 hours per week)

Indian 2.2 Self employed 18.0 Chinese 1.5 14.7 Other Asian 0.9

Not currently in paid employment

Other 5.4 Retired 2.8 Individual Income Less than $15,000 13.9 Household Income Less than $20,000 4.6 (before tax) $15,001 – $25,000 11.0 (before tax) $20,001 – $30,000 5.8 $25,001 – $30,000 5.3 $30,001 – $40,000 6.1 $30,001 – $40,000 8.3 $40,001 – $50,000 6.6 $40,001 – $50,000 11.8 $50,001 – $70,000 17.1 $50,001 – $70,000 16.7 $70,000 – $100,000 18.1 $70,001 or more 22.7 $100,001 or more 33.1

Results KiwiSaver membership

Just over half of New Zealanders aged 18-‐65 are KiwiSaver members, but there is no

difference in the proportion of New Zealanders that have joined KiwiSaver by either age

or gender. There is, however, a significant difference based on employment status

(p=0.00), education (p=0.00), personal income (p=0.01), and household income

(p=0.03). Those in employment of 20 or more hours per week are more likely to be

members, while the self-‐employed are less likely to be a KiwiSaver member. Those with

bachelor and higher degrees are more likely to be KiwiSaver members than those with 8 The percentages may not add to 100%, as some respondents did not provide a response. 9 Multiple responses were possible for the ethnicity question.

other, or no, qualifications. The relation between household income and KiwiSaver

membership was difficult to determine, but those on personal incomes between $15.000

and $50,000 were more likely to have joined KiwiSaver than those on higher or lower

incomes.

Figure 1: Proportion of KiwiSaver members by Employment Status and Education

The income relation has intuitive appeal, as those on incomes below $15,000 would

probably struggle to afford the minimum contribution, while those on more than

$50,000 are likely to have other retirement savings. This latter point is supported by

the findings in relation to prior retirement savings. More than half (55.0%) of those who

have joined KiwiSaver report that they were not previously saving for retirement, and

there are significant differences in those who were saving for retirement prior to joining

KiwiSaver in relation to age (p=0.00), gender (p=0.01), employment status (p=0.00), and

income (both household and personal). In the case of personal income (p=0.00), those

on incomes above $50,000 are more likely to have been saving prior to joining

KiwiSaver. The relationship is similar for household income (p=0.01) with those from

higher income households more likely to have prior retirement savings. Prior

retirement savings were also more likely for older respondents and for the self-‐

employed and the retired. Males were also more likely to have prior savings (50.6%)

than females (38.2%).

Most KiwiSaver members chose to join fairly quickly after the scheme came into

existence, with nearly half (43.3%) having been a member for more than three years,

reflecting the early promotion of scheme membership. Nearly a quarter (22.1%) have

been a member for 2-‐3 years, and a similar proportion (21.2%) had been a member for

1-‐2 years. The few remaining (13.4%) had been members for less than 12 months.

Figure 2: Reason for joining KiwiSaver

The importance of saving for retirement was given as the main reason for joining

KiwiSaver by more than half the members (51.5%). However, many (27.9%) had the

government incentives as the main driver for their decision to join. A relatively small

proportion (8.9%) joined simply because they had started a new job. While three-‐

quarters of those who joined simply because they had started a new job were aware that

they could opt out of membership it is concerning that they did not all have this

information.

There were significant differences in the main reason for joining KiwiSaver by age

(p=0.00), and employment status (p=0.00). Older respondents were more likely to cite

the importance of saving for retirement and the government incentives. The youngest

age group were more likely to have joined because they had started a new job or due to

family/friends’ recommendations. The middle age group (30-‐44) were very average in

their reasons for joining. Those in full-‐time employment were more likely to have the

importance of retirement savings as their main reason for joining KiwiSaver, while the

self-‐employed were more likely to have joined on the recommendation of their financial

adviser. Those not currently in paid employment and those in employment for less than

20 hours per week were more likely to have joined on the recommendation of

family/friends. The government incentives were much more likely to be the main

reason for joining for the retired (reported by 77.8% against 27.9% for the whole

sample).

Figure 3: Importance of elements of KiwiSaver scheme

As shown in Figure 3, the government incentives were important elements of the

KiwiSaver scheme. Almost all respondents (91.3%) described the $1000 kick-‐start as

very important or important, while a slightly lower proportion (88.9%) said the same

about the member tax credit. Of much less importance was the first home subsidy, with

only 28.6% describing it as important or very important, which reflects restrictions on

access to the subsidy to a small proportion of KiwiSaver members, compared to the

other incentives that are more universally available. Views on the importance of some

of these elements of the KiwiSaver scheme varied by demographic characteristics.

The importance of the tax credit differed significantly by employment status (p=0.03)

and education (p=0.00). The retired saw the member tax credit as more important

while those working 20 or more hours per week were more neutral, and those not

currently in paid employment were more likely to rate it as unimportant. Those without

any formal qualifications placed less emphasis on the tax credit, while those with a

vocational qualification saw the tax credit as important but less so, and those with a

higher degree had more neutral responses.

The importance of the employer contribution differed by most characteristics. The

significant difference by age (p=0.00) was seen in greater importance placed on the

employer contribution by the two younger age groups, with more of the older age group

rating it as unimportant (14.2% against 7.8% for the whole sample). It is not surprising

to find a significant difference based on employment status (p=0.00), with more of those

employed 20 or more hours per week (56.0%) rating it as very important while more of

the self-‐employed (17.9%) and retired (55.6%) rate it as very unimportant. Education

also generated significant differences (p=0.01) with lack of a formal qualification

associated with a neutral view of the employer contribution or an assessment of it as

being unimportant, while more of those with bachelor or higher degrees rated the

employer contribution as very important. While there was no significant difference

based on household income, there was based on personal income (p=0.04). Those on

incomes over $40,000 were more likely to rate the employer contribution as important

or very important.

The final government incentive is the subsidy available to selected first home buyers,

with significant differences found on the basis of age (p=0.00), employment status

(p=0.00), household income (p=0.01) and personal income (p=0.00). Given the subsidy

is for first home buyers it is not surprising that this incentive is seen as more important

by the youngest age group, and very unimportant for the oldest age group. Similarly,

finding that most (77.8%) of the retired respondents rated the first home subsidy as

very unimportant is not surprising. The proportion of those employed 20 or more hours

per week ranking this incentive as very important was slightly above average. In terms

of income, the lower income groups ($20,001 -‐ $50,000 for household income and

$25,001 -‐ $50,000 for personal income) were more likely to rate this incentive as very

important, which reflects the income caps associated with eligibility for the subsidy.

There was also some difference based on ethnicity, with Maori (p=0.01) seeing the first

home subsidy as more important than non-‐Maori. Similarly, those identifying as Pacific

Island saw the first home subsidy as significantly more important (p=0.00) than the

non-‐Pacific Islanders.

Figure 4: Reasons for non-membership

The reason for not being a member given most frequently is having sufficient other

savings and investments for retirement. Government-‐related concerns were frequently

given as the reason for non-‐membership, particularly a belief that changes to the

KiwiSaver scheme are likely in the future. It is interesting to note the concern expressed

about the government’s ability to manage the money in KiwiSaver, cited as a reason for

not joining KiwiSaver by 22.7% of the non-‐members. This reflects a lack of

understanding about the scheme, as all savings are held with private providers and the

government has no role in managing the saved funds. The third most popular reason

was lack of affordability for the individual, which has been cited as an issue by critics of

the scheme since the scheme was first proposed. Other reasons given included not

having got around to it yet, not working, and, in one case, being encouraged not to by the

employer.

KiwiSaver Funds

Figure 5: KiwiSaver provider

ASB has the largest market share (by number of members), with OnePath (which

includes those who identified ANZ, The National Bank, or ING as their provider) in

second place. Several other providers were identified that were not on the list provided,

but the only one with substantial numbers was Fidelity (3%)10. It was reassuring to find

that only a few respondents (2%) were unable to indentify their KiwiSaver provider, but

several did misidentify their provider.

The only significant difference was found on the basis of age (p=0.00). Westpac and

Gareth Morgan had older members, while Mercer and Fisher Funds had younger

members. The members of the ASB and AMP KiwiSaver Schemes were also slightly

younger than average.

10 The other providers identified included Aon, Superlife and Craigs Investment Partners.

Figure 6: Reason for choosing the KiwiSaver provider

While many respondents indicated that their provider is simply the default scheme

selected for them by the IRD, a greater proportion indicated that they had chosen to

have their KiwiSaver with their bank. Other reasons given by respondents for their

choice of provider indicated that some had undertaken research of some kind before

making their choice, while others went for lower fees. Interestingly, some KiwiSaver

members reported they had joined the Gareth Morgan Investments or Fisher Fund

schemes because of the individuals, Gareth Morgan and Carmel Fisher respectively,

associated with those funds, which is both an advantage and a disadvantage for those

funds.

Figure 7: Type of funds held

There are five basic types of funds available for KiwiSaver members to choose from, as

shown in Figure 7, but it is possible for KiwiSaver members to have multiple funds. As

Figure 7 shows, the most popular type of fund is the balanced fund, followed by

conservative funds. The popularity of the conservative funds is likely to be due to this

being the type of fund new members are given if assigned to a default provider by the

IRD. However, a relatively large proportion (26.8%) of respondents were unable to

identify the type of fund they are in, which raises the question of how they can assess

whether the fund type is suitable for their needs and their risk-‐tolerance level.

There were some significant differences in fund type by age, gender, education and

income. Age was significant for balanced funds (p=0.00), with the investment increasing

with age, and conservative funds (p=0.01), with the youngest and oldest age groups both

more likely to be invested in conservative funds than the middle age group. For the

older age group this is likely to be appropriate for their life-‐cycle stage. For the younger

age group this may reflect a default provider relationship, or a lack of financial

knowledge and/or confidence. Gender was significant for the aggressive funds (p=0.00),

growth funds (p=0.00) and conservative funds (p=0.03), with males more likely to be

invested in aggressive and growth funds while females are more likely to be invested in

conservative funds. Education was significant for growth funds (p=0.01), with those

with bachelor and higher degrees more likely to be invested in growth funds.

Household income was significant for the aggressive funds (p=0.04) and the growth

funds (p=0.00), with those in households with an annual pre-‐tax income of $100,000 or

more being more likely to be invested in both types of fund. Similarly, personal income

was significant for growth funds with those having a personal pre-‐tax income of more

than $70,000 being more likely to be invested in a growth fund.

Only a small proportion (22.9%) of respondents had obtained advice to help them select

the most appropriate fund for their needs. There was a significant difference in the use

of financial advice by employment status (p=0.02), with the retired less likely to have

obtained advice, while those not currently in paid employment were more likely to have

obtained advice. Another significant difference was found with respect to personal

income (p=0.00). Those on incomes between $30,001 and $50,000 were more likely to

have obtained advice, while those on incomes above $70,000 were less likely to have

done so.

KiwiSaver Account Changes

Having joined KiwiSaver, a member can make changes, which can include changing their

provider and/or changing the type of fund/s invested in. Additional payments can be

made to KiwiSaver accounts, but only a few (12.5%) have done so. A higher proportion

(17.5%) has switched between providers since first joining KiwiSaver. Switching

between providers differed significantly by age (p=0.04), with switching decreasing

with age.

Figure 8: Reason for changing KiwiSaver provider

A list of possible reasons for changing provider was provided, with the main reason

chosen from that list being to get higher returns (13.8%) followed by changing because

the member’s financial adviser recommended it (11.7%). However, for more than half

(51.1%) of those who had switched provider the main reason for doing so was not one

of those included on the list. While respondents gave a range of reasons, the main one

actually related to a preference for having the KiwiSaver account at the members’ bank,

with one explanation being that it is “more convenient to see it with online banking”. A

change in employment was another reason given for changing provider. Other reasons

given included a forced change because the original provider moved out of KiwiSaver

products, moving to a provider perceived as better, or due to poor service.

Fewer KiwiSaver members (4.8%) have switched between funds at the same provider.

Just over half of these have increased their level of risk, for example by moving from a

Conservative fund to a Growth fund, while about one third reduced their risk, for

example by moving from an Aggressive fund to a Cash fund. The balance maintained a

similar level of risk in changing fund. There was a significant difference (p=0.01)

between those who had switched funds, based on education, with those having a higher

level of education being more likely to have switched funds.

Other Retirement Plans

It is helpful to also understand where KiwiSaver fits in terms of a person’s other

retirement plans. More than half (57.6%) of all respondents reported having other

forms of investment or savings plans for their retirement, as shown in Figure 9.

Figure 9: Other types of investment held

Nearly half (46.8%) of respondents had a bank deposit, making it the most popular

category of other retirement savings. Nearly one-‐third (31.2%) has some other form of

superannuation scheme. It is recognised that New Zealanders have a preference for

residential property investment, which is confirmed with more than one-‐quarter

(27.6%) owning one or more residential investment properties. However, Figure 9

shows there is a good breadth of investment beyond property.

Figure 10: Proportion of retirement savings in KiwiSaver

At this stage, the KiwiSaver account represents less than 20% of their retirement

savings for most respondents11, which is not surprising for a scheme that was only four

years old at the time of the survey. There should be some concern that 16.8% of

respondents were unable to estimate the proportion of their retirement savings

represented by their KiwiSaver account. While this may reflect a lack of knowledge

about either their KiwiSaver account or their other savings, it suggests a lack of interest

in their financial situation.

11 This includes those who are not members of KiwiSaver.

There may be reason to be alarmed that more than half (61.2%) of respondents see their

family home as part of their retirement assets. Concerns have been expressed about the

ability of the New Zealand housing market to absorb a simultaneous decision by those

nearing retirement to realise the “savings” value in their home.

Attitudes towards Investments and Advice

Figure 11: Acceptance of risk

It is also helpful to understand attitudes towards risk and the source of information used

for financial matters. Nearly half of respondents (42.8%) indicated a willingness to

accept an average level of volatility in their investments in exchange for an average

return, but about one-‐third (35.1%) indicated only a low or very low tolerance of

volatility. It is positive that there is an apparent acknowledgement that some risk needs

to be accepted in order to achieve an average return. The general reluctance to accept

higher risk levels to achieve higher returns is unsurprising, particularly in light of the

relatively recent finance company failures in New Zealand.

There was a significant difference in risk tolerance between age groups (p=0.04), with

younger respondents indicating a greater willingness to take higher risk to achieve a

higher return. The preference for lower risk was relatively similar across the age

groups, and the greater proportion of the young willing to take higher risks came from a

reduction in the number willing to accept an average level of risk and return. There was

also a significant difference by gender (p=0.00), with females less willing to accept

higher levels of risk. Another significant difference related to the highest level of

education (p=0.01) with risk tolerance increasing with education level. The significant

difference related to household income (p=0.00) and personal income (p=0.00) was

reflected in risk tolerance increasing with increasing income.

Figure 12: Source of financial advice

The main source of information on financial matters was reported to be family and

friends. Financial advisers, banks and the internet were reported to all be used in

approximately equal proportions. A small number of people claimed to rely on

themselves and their own experience and education, and apparently used no outside

information, and it would be a concern if these people were actually making their

financial decisions in an information vacuum.

The source of information differed significantly by age (p=0.00). Use of financial

advisers and books etc increases with age, while reliance on family and/or friends and

on the internet decreases with age. There was also a significant difference by gender

(p=0.00), with females relying more on people (financial advisers and family/friends)

while males made more use of impersonal material (books etc and the internet).

Employment status (p=0.00) was also related to significant differences in the sources of

information used. The retired reported greater use of financial advisers and less

reliance on family and/or friends. The self-‐employed made greater use of books etc, and

less use of family and/or friends. Those not currently in paid employment were the

opposite and placed much greater reliance on family and/or friends and less on books

etc. Those employed for 20 or more hours per week make less use of financial advisers

and more use of the internet, while those employed for less than 20 hours per week rely

more on family and/or friends and less on books etc and the internet. Education was

another demographic characteristic that saw significant differences (p=0.00) in

information sources. Those with a secondary school qualification as their highest level

of education place more emphasis on family and/or friends, as do those with bachelor

and higher degrees, perhaps surprisingly. Those with no formal qualifications make

greater use of financial advisers.

Conclusions With half of the key target demographic (18-‐65) having joined KiwiSaver, it is clear that

New Zealanders have generally embraced KiwiSaver, with the employed and moe-‐highly

educated having higher levels of membership. Most have joined because they recognise

the importance of saving for their retirement; however, for the older age group the

government incentives are important.

Many non-‐members have chosen not to join due to a distrust of the government,

particularly with respect to the possibility of the rules changing again. This is not really

surprising when there have been two changes in the four years the scheme has been

operating. This means it is important for the major political parties to commit to

retaining KiwiSaver and to maintaining its structure.

An interesting finding is that many KiwiSaver members have chosen to keep their

financial affairs in one place and have therefore elected to join their bank’s KiwiSaver

scheme. However, others have simply stayed in the default scheme to which they were

allocated by the IRD. It appears the choice of provider is being driven by convenience,

with a lack of proper analysis of the options available, and identification of the best

provider and fund to meet the member’s needs.

Some KiwiSaver members lacked knowledge about their membership, which is of some

concern. A number did not know, or misidentified, their provider, and more than one-‐

quarter were unable to specify what type of fund they are in.

A positive finding is that many New Zealanders are not relying solely on KiwiSaver to aid

their retirement and have other savings or investment plans in place. The range of

investment associated with these other plans is broader than is generally perceived,

although residential investment properties are important.

There appears to be a preference to take the advice of family and friends rather than

that of financial advisers. Only a few New Zealanders have joined KiwiSaver or made

changes to their KiwiSaver account on the basis of a recommendation from a financial

adviser. Books and magazines, and the internet are relied on almost as much as

financial advisers.

Demographic characteristics play a role in choices made in respect of KiwiSaver

membership, including influencing the decision to join, the provider selected, the

specific type of funds used. They also influence attitudes towards KiwiSaver, retirement

savings and investment more generally. This means that KiwiSaver is not really a ‘one

size fits all’ option, and it is important to manage its promotion and its structure to meet

the varied needs of the population.

References Fernandez-‐Lopez, S., Otero, L., Vivel, M., and Rodeiro, D. (2010). What are the driving

forces of individuals’ retirement savings? Journal of Economics and Finance, 60(3), p. 226-‐251.

Hira, T.K., Rock. W.L., and Loibl, C. (2009). Determinants of retirement planning behaviour and differences by age. International Journal of Consumer Studies, 33, p. 293-‐301.

Holden, S. and VanDerhei, J. (2010, July). Recent trends in 401(k) participants’ asset allocations. Journal of Financial Services Professionals, p. 76-‐88.

Howlett, E., Kees, J., and Kemp, E. (2008, Summer). The role of self-‐regulation, future orientation, and financial knowledge in long-‐term financial decisions. The Journal of Consumer Affairs, 42(2), p. 223-‐242.

Oehler, A., and Werner, C. (2008). Saving for retirement – A case for financial education in Germany and UK? An economic perspective. Journal of Consumer Policy, 31, p. 253-‐283.

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