Kiwisaver and Retirement Adequacy

Australasian Accounting Business and Finance Journal, 6(4), pp. 61-78, 2012

FIRN Research Paper

8 Pages Posted: 12 Jul 2013

See all articles by Kirsten MacDonald

Kirsten MacDonald

Griffith University

Robert J. Bianchi

Griffith University

Michael E. Drew

Griffith University

Date Written: November 27, 2012

Abstract

Investors face a long and uncertain journey to retirement and beyond, particularly when investing in new defined contribution schemes such as New Zealand’s KiwiSaver. This paper seeks to provide positive insights into the design of KiwiSaver by assessing the recently announced move from 4 to 6% minimum contribution rates using stochastic simulation. We consider retirement adequacy from two perspectives: (i) multiples of gross final earnings achieved during the accumulation phase; and (ii) replacement rates of salaries during the decumulation phase. The findings reveal that an increase in the contribution rate from 4% to 6% dramatically increases the probability of investors reaching a retirement target of eight (8) times final earnings, from 6% to 40%. However, despite the shift in lifetime contributions in the right direction, the simulation analysis suggests that, in the majority of scenarios, KiwiSaver investors will not achieve an adequate retirement target.

Keywords: KiwiSaver, retirement outcomes, contribution rates

JEL Classification: D14, G11, G23

Suggested Citation

MacDonald, Kirsten and Bianchi, Robert J. and Drew, Michael E., Kiwisaver and Retirement Adequacy (November 27, 2012). Australasian Accounting Business and Finance Journal, 6(4), pp. 61-78, 2012, FIRN Research Paper, Available at SSRN: https://ssrn.com/abstract=2187680

Kirsten MacDonald (Contact Author)

Griffith University ( email )

Brisbane, Queensland 4111
Australia

Robert J. Bianchi

Griffith University ( email )

170 Kessels Road
Nathan, Queensland QLD 4111
Australia

Michael E. Drew

Griffith University ( email )

Brisbane, Queensland 4111
Australia

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