University of Canterbury research into saving for super

February 10, 2015

A University of Canterbury research project is exploring decisions people make regarding their KiwiSaver superannuation scheme, in what is arguably the most important financial decision of their lives.

Dr Kuntal Das, a Canterbury economics and finance lecturer, and Dr Christina Atanasova, a visiting Erskine Fellow from Simon Fraser University in Canada, are analysing the asset allocation decisions being made by people who invest in KiwiSaver. The Erskine fellowship programme was established in 1963 following a generous bequest by distinguished former student John Erskine.

Dr Atanasova says they want to find out if super scheme plan participants are making the best choices in their savings. Retirement income in New Zealand traditionally has come from the universal government PAYGO superannuation scheme.

“However, faced with rapidly changing demographics and the subsequent huge divergence between contribution inflows and benefit outflows, the government has followed a worldwide trend toward letting employees make the decision of how much they want to save for retirement,” Dr Atanasova says.

“KiwiSaver was introduced in 2007 and under the scheme; individuals take responsibility to make their own asset-allocation decisions, raising concerns about how well they do at this task. The crucial question is will there be sufficient wealth accumulated so people will be able to maintain their present standard of living once they retire?

“Asset allocation is critical to understanding the problem of pension plan investment performance. A typical pension fund’s annual investment return is much higher than its annual employer and employee contributions.

“The Morningstar June Quarter 2014 Survey says New Zealanders’ retirement savings are being managed extremely conservatively. Currently close to 60 percent of KiwiSaver money is invested in conservative assets, mainly bonds and cash.

“This represents a heavy bias towards conservative choices when compared with the US where more than 60 percent of KiwiSaver equivalent assets are invested in equity. This raises major concerns especially in an environment with historically low interest rates and a depreciating New Zealand dollar. In this context, understanding the determinants of pension plan asset allocation in New Zealand is of critical importance.

“Findings from this research will provide new insight into the design of retirement saving plans, both public and private. What type of funds should a plan offer? This will increase our understanding of the pension plan participants’ investment decisions and our ability to make public policy recommendations about pension plan regulations in New Zealand.”

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