Influences on consumers’ KiwiSaver investment fund choices
When it launched KiwiSaver in 2007, New Zealand joined a growing international trend towards second-tier personal pension schemes. The uptake of KiwiSaver has exceeded expectations, with 1.75 million people joining by June 2011, thanks to an auto-enrolment provision and financial incentives from the government and employers.
New recruits to the scheme can choose a KiwiSaver provider and an investment fund for their savings. Funds range from low-risk conservative, to balanced, to higher-risk growth. New members who decline to choose a provider or a fund are automatically allocated to conservative schemes run by government-appointed default providers. The default schemes have been popular, as have conservative funds in general. By June 2011, 57 percent of total funds under management in KiwiSaver were invested in broadly conservative (including default) funds.
Concerns have been raised that too many KiwiSavers, particularly younger members, are in conservative funds that do not match their age and risk profile. The aim of this thesis is to identify the main factors that influence KiwiSaver members when they make – or opt out of making – the fund choice decision.
A qualitative approach was adopted for this exploratory study in the belief that in-depth discussion provided by focus group interviews would tease out the factors influencing fund choice. Three focus group meetings were supplemented by a stimulus card exercise and questionnaire. Focus group transcripts were analyzed and interpreted using thematic analysis and from there a tentative theory was developed in the form of a model of potential influencing factors.
Research into retirement financial planning is often framed in a context of two competing theoretical schools: first, the neoclassical theorists who would expect KiwiSaver recruits to be rational, informed decision makers who have the cognitive ability to maximize their long-term wealth; and second, the behavioural theorists who would expect KiwiSavers to be naïve, short on cognitive ability and willpower, nervous of risks, and prone to following their friends and the scheme defaults. Previous studies have found pension scheme members were influenced by the incentives on offer, by the enrolment regime, by the scheme’s default rules, and by financial education programmes, the latter two being important factors in scheme members’ fund choice. This study found the most prevalent factors influencing KiwiSaver members are their attitude to financial risk, their age and perceived time to reaching retirement, and advice coming from family, friends and colleagues. The study also found that while people trust the media as a source of information on KiwiSaver, there is some dissatisfaction with the quality of information and performance reporting coming from their providers.