MERCER KIWISAVER SENTIMENT INDEX STUDY MAY 2012

Transcription

1 SECURING SECURING RETIREMENT RETIREMENT INCOMES INCOMES MERCER KIWISAVER SENTIMENT INDEX STUDY MAY 2012

2 CONTENTS Message from Martin Lewington, Head of Mercer New Zealand Introduction to the Mercer KiwiSaver Sentiment Index Study 1 Mercer KiwiSaver Sentiment Index Study Overview 2 Methodology 2 Executive Summary 3 What are the implications for providers and employers? 4 Providers and the superannuation industry 4 Employers 4 About the Mercer KiwiSaver Sentiment Index 6 Preparation for retirement 8 Knowledge of KiwiSaver 8 General sentiment towards KiwiSaver 10 Perceived benefit of the KiwiSaver scheme continues to grow among participants 16 Retirement readiness 17 Anticipated comfort level in retirement 18 Kiwis want to retire earlier... but remain realistic 20 Greater reliance on super means less reliance on government 22 Participation in KiwiSaver 24 Participation rates have grown significantly 24 Most Kiwis are satisfied with their KiwiSaver provider 25 Loyalty to current KiwiSaver scheme providers 26 What are Kiwis looking for in retirement savings schemes? 27 Ways retirement savings schemes can help 28 Around half actively selected their KiwiSaver provider 29 Most think a 2% contribution level is acceptable 30 How does participation in KiwiSaver affect household budgets? 32 Participation in a workplace savings scheme 34 Government policy 36 Knowledge of saving for retirement generally 38 Understanding of retirement savings schemes 38 Sources of advice / information 40 Anticipated behaviour 42 One in five intend to join in the next 12 months 42 Appendix: About the survey participants 44 2 SECURING RETIREMENT INCOMES

3 Message from Martin Lewington Head of Mercer New Zealand At its fifth birthday, the KiwiSaver scheme can celebrate! Introduction to the Mercer KiwiSaver Sentiment Index Study Take-up of the scheme is impressive, with over two in three working New Zealanders participating. The majority of people believe KiwiSaver is a positive way to save for retirement. And satisfaction with KiwiSaver providers is high, with only 5% expressing dissatisfaction. These are just some of the insights to be found in the latest Mercer KiwiSaver Sentiment Index Study which tracks the attitudes and concerns of a broad range of New Zealanders toward retirement savings. Mercer believes it is crucial to understand Kiwis attitudes toward retirement saving, as the issue is one of national significance. With an ageing population and a relatively generous public pension scheme (compared to other developed countries), the costs of retirement funding are set to rise significantly in coming decades. The introduction of KiwiSaver demonstrates the Government recognises the scale of this challenge and it has done an admirable job in promoting, supporting and refining the scheme. The move to allow a 2% minimum contribution, for example, was an effective way to boost participation; and the proposed auto-enrolment is set to increase this further. From 1 July 2012, the first wave of eligible members will be able to access their KiwiSaver funds, marking a key milestone in the scheme s maturity. It provides a timely opportunity to reflect on how the issue of retirement funding is evolving. And while sentiment towards KiwiSaver is positive overall, there is still plenty of scope to improve New Zealanders knowledge of retirement saving and to boost their retirement readiness. The survey reveals that members look to KiwiSaver providers, their employers and the Government for information on these topics, so it is crucial that all of these groups are able to respond effectively. Mercer will continue to work with these stakeholders as well as KiwiSaver members, to ensure they have clear, compelling and reliable information about saving for retirement. The Mercer KiwiSaver Sentiment Index Study is one way by which we can see the gaps in understanding plus areas for concern, then respond accordingly and effectively. MERCER KIWISAVER SENTIMENT INDEX STUDY 1

4 Mercer Kiwisaver Sentiment Index Study Overview In July 2007, the New Zealand Government established a voluntary savings program called KiwiSaver to help people fund their retirement. As a default provider, Mercer has a keen interest in understanding public sentiment towards KiwiSaver. The study was first conducted among a random sample of just over 500 New Zealanders prior to the introduction of the scheme in June 2007, and sought to identify their understanding of, attitudes to and intended behaviour towards KiwiSaver. A second wave of the study was conducted among a similar number of people in December Mercer sought to understand the shifts in attitudes towards the scheme, and where KiwiSaver belongs in broader retirement strategies. Where appropriate, results have been compared to those from previous waves of the survey. This report presents findings from the third wave of the survey five after the implementation of KiwiSaver. Methodology Mercer used a quantitative approach, consisting of 1,003 online surveys among working New Zealanders aged conducted from 23 February to 29 February Data has been weighted to reflect the age/gender demographics of the working New Zealand population and to accommodate any over/under representation of specific demographic subgroups in the sample. Statistically significant differences at the 95% confidence level have been tested between subgroups and are indicated throughout this report by the following notation. The result is significantly higher than all other comparison groups The result is significantly lower than all other comparison groups In some instances, due to rounding or multiple response questions, percentage figures shown may add to under or over 100%. 2 SECURING RETIREMENT INCOMES

5 Executive Summary Since KiwiSaver was launched nearly five ago, just over 1.9 million Kiwis have joined the scheme. 1 The initiative was designed to help New Zealanders fund their retirement, with the Government playing an active role in educating Kiwis on the need to consider retirement funding regardless of age, as well as providing financial incentives (such as the kick-start allowance and member tax credits) to participate in the program. It is therefore not surprising to find that the importance of superannuation in funding retirement has grown significantly over this time. Divergent Views of KiwiSaver Mercer s third KiwiSaver Sentiment Index Study reveals that two in three New Zealanders believe the scheme is a good way to save for retirement. In particular, they appreciate the Government s role in assisting their savings efforts, and the seamless manner in which contributions can be made directly from their salary into the scheme. Nonetheless, some New Zealanders are still uncertain about KiwiSaver, stemming from concerns around the impact of global market volatility on their savings, and questions around whether the Government will continue to support the scheme in its current form. Survey participants were segmented depending on their attitudes and behaviours regarding KiwiSaver, and fell into one of four segments, from most to least positive. The results revealed an increased polarisation in attitudes, with increases at both ends of the scale. Kiwis seem to have more definitive views now on their attitude towards the scheme. Those positive about the scheme tend to be younger, while the more skeptical tend to be older, possibly due to a belief that their opportunity to benefit from the scheme is limited. Overall, however, most people surveyed are satisfied with their current KiwiSaver scheme provider, and intend to remain loyal to it. Key drivers of satisfaction with providers were competitive fees, quality and management of investments, and communications material that is easy to understand. The 2012 results show there continues to be a sizable proportion (37%) of individuals who say they did not make an active provider selection rather, they deferred to the default allocation process administered by Inland Revenue, or their employer. This finding reveals an important opportunity for scheme providers and the Government to boost New Zealanders engagement with KiwiSaver, and drive more active participation in their retirement savings strategy. Retirement Readiness Remains a Challenge Self-reported levels of preparation for retirement increased in the 2012 findings, with just over half of respondents having given some thought to retirement. However, there is an ongoing challenge to engage those who are yet to think about retirement particularly the one in three individuals aged over 45, who are yet to commence preparations. It is encouraging to see that New Zealanders are keen to learn more about superannuation and ways to save for retirement. Only one in five (21%) rate their knowledge about such matters highly, yet 55% aspire to have this elevated level of understanding. Finally, the results reveal a growing acceptance of the reality of retirement and longer life expectancy. A growing number (52%) believe they will be less comfortable in retirement than they are now, and even though the mean age at which they want to retire is 57, they actually expect to retire at 65. In fact, one in four survey participants anticipate retiring after age 70, which has implications for employers, who must build this into their workforce projections and consider how they accommodate employees who plan to work beyond the age of KiwiSaver statistics as at 31 March 2012, available at 3

6 What are the implications for providers and employers? Providers and the Superannuation industry The results present several opportunities for KiwiSaver providers and the industry. These include an appetite for providers to: Provide timely communications about investment performance and proactive guidance on what to do now ; Offer strategies to deal with market volatility, as well as easy access to advice; and Encourage members to plan for their retirement by accessing online tools and education. In addition, regular member research can provide valuable insights into traits, characteristics, needs and attitudes towards super which can underpin member service strategies moving forward. EMPLOYERS The results present several opportunities for employers, including: Considering the impact of reduced superannuation balances on employees and the subsequent impact on workforce planning. Employees nearing retirement, for example, may need to stay in the workforce longer than they had initially planned; Maintaining an ongoing dialogue with older employees to understand their individual circumstances and how their transition to retirement may need to be adjusted; Considering the development of phased retirement plans and flexible working conditions for older workers; and Taking advantage of financial literacy programs offered by funds, financial advisers and consultants as part of your company s learning and development programs. 4 SECURING RETIREMENT INCOMES

7 MERCER KIWISAVER SENTIMENT INDEX STUDY 5

8 About the Mercer KiwiSaver Sentiment Index The Mercer KiwiSaver Sentiment Index is designed to provide insight into working New Zealanders sentiment towards KiwiSaver. The Index aggregates individual perceptions of: Participation in KiwiSaver Perceived benefit of KiwiSaver Anticipated reliance on superannuation in retirement Ratings for each of these measures are combined to generate a score for each individual and segments are created based on scores. Higher sentiment scores represent positive views of KiwiSaver as a way to save for retirement, participation in the scheme and high anticipated reliance on superannuation in retirement. Conversely, lower scores represent negative perceptions of KiwiSaver, low anticipated reliance on superannuation, and non-participation in the scheme. Figure 1 : Profiling segments Scores are grouped into four segments namely: Positive and embracing these individuals hold positive views of KiwiSaver as a way to save for retirement, participate in the scheme and have a high anticipated reliance on superannuation in retirement. In 2012, 19% of respondents fell into this category, up from 14% in 2009; Positive but reserved these individuals are also fairly positive in their views of KiwiSaver, but may not anticipate relying on super as much, or may not be in the scheme. This wave saw a significant decline in the proportion in this category, down from 33% to 20%; Skeptical these individuals are less positive in their views on KiwiSaver, and are unlikely to be in the scheme. This segment represents 31% of survey respondents a stable result from the 2009 survey; and Actively against these individuals have negative perceptions of KiwiSaver as a way to save for retirement, they do not participate in the scheme and have little anticipated reliance on superannuation in retirement. This survey saw an increase in those in this segment, up from 22% to 30%. 14% 19% 33% 20% 31% 31% Positive and embracing Positive but reserved 22% 30% Skeptical Actively against SECURING RETIREMENT INCOMES

9 Of particular interest is the increased polarisation of attitudes. There was an increase in the proportions in each end of the continuum namely positive and embracing and actively against. These shifts in distribution have coincided with the decline of the positive but reserved segment. These results suggest that with the passage of time has come a greater understanding of the scheme, and corresponding solidification of attitudes and behaviours either positive or negative. Segments have been profiled below, and this reveals some interesting trends: Positive and embracing, and positive but reserved segments tend to be younger (aged 44 and under), married and with young families. Those in the skeptical and actively against segments tend to be older people who own their own home. Disengagement with KiwiSaver may be, at least in part, due to these Kiwis believing it is too late for them to benefit from participation in the KiwiSaver scheme, coupled with a preference for other investment vehicles. Figure 2 : Profiling segment characteristics Positive and embracing, 19% Aged Rent Young family Positive but reserved, 20% Younger (18-24) Have a mortgage Young couple / no children Actively against, 30% Older (55+) Own their own home Mature single or married with no children at home Children not enrolled in KiwiSaver Skeptical, 31% Older (55+) Own their own home Mature single or married with no children at home MERCER KIWISAVER SENTIMENT INDEX STUDY 7

10 Preparation for retirement Knowledge of KiwiSaver - New Zealanders continue to demonstrate a reasonable level of confidence in their knowledge of KiwiSaver since it was introduced Working New Zealanders were asked how much they thought they knew about KiwiSaver. Levels of confidence in knowledge among Kiwis about the scheme have improved slightly since the last survey results in The majority (71%) felt they had at least a reasonable level of knowledge of KiwiSaver, with 25% saying they had a fairly high/very high understanding of the scheme (up from 21% in 2009). However, nearly one in three (29%) are less confident, suggesting there is still an opportunity for Government, employers and KiwiSaver providers to further educate and inform those who may be confused by recent policy changes. The fact is, KiwiSaver will continue to evolve, and will play an important role in New Zealanders retirement saving throughout their working lives, so there are always reasons to educate them about the scheme. Employers, for example, can provide information and links in communications to their employees or on the intranet, and KiwiSaver providers can include educational resources when they send annual member statements. Mercer believes we must take every available opportunity to tell the KiwiSaver story and encourage New Zealanders to think more about their retirement saving. Figure 3 : Knowledge about KiwiSaver 41% 50% 46% 22% 16% 19% 17% 18% 19% 6% 5% 6% 10% 9% 8% 5% 2% 2% I have a very high level of knowledge about KiwiSaver I have a fairly high level of knowledge I have a moderate level of knowledge I have a low level of knowledge I have a very low level of knowledge I don t know anything about KiwiSaver Q. How would you rate your level of knowledge about KiwiSaver, the voluntary work-based retirement savings scheme introduced in July 2007? 8 SECURING RETIREMENT INCOMES

11 Some segments of the community are more confident in their understanding of KiwiSaver than others. Self-ratings of knowledge about KiwiSaver are higher among: Those currently in a KiwiSaver scheme Those who view the scheme positively Those who consider themselves prepared for retirement Table 1: Subgroup differences in knowledge about KiwiSaver How would you rate your level of knowledge about KiwiSaver, the voluntary work based retirement savings scheme introduced in July 2007? I have a very high level of knowledge about KiwiSaver I have a fairly high level of knowledge I have a moderate level of knowledge I have a low level of knowledge I have a very low level of knowledge I don t know anything about KiwiSaver Currently in a KiwiSaver scheme Preparation for retirement Attitude to KiwiSaver Yes No Unprepared Prepared Positive Negative Age Gender Index Male Female Actively against Skeptical reserved (n=615) (n=378) (n=835) (n=151) (n=654) (n=239) (n=215) (n=372) (n=416) (n=468) (n=535) (n=304) (n=313) (n=199) (n=187) 7% 3% 5% 10% 7% 2% 5% 5% 6% 5% 6% 4% 8% 5% 5% 23% 14% 17% 33% 25% 12% 18% 17% 21% 23% 16% 15% 23% 21% 18% 49% 42% 47% 41% 49% 45% 39% 50% 46% 43% 48% 38% 45% 55% 52% 15% 25% 20% 11% 13% 29% 24% 20% 16% 18% 20% 28% 15% 15% 17% 5% 11% 8% 5% 4% 13% 10% 6% 8% 9% 7% 12% 7% 4% 7% 0% 5% 2% 0% 1% 0% 4% 2% 2% 2% 3% 4% 2% 0% 3% embracing MERCER KIWISAVER SENTIMENT INDEX STUDY 9

12 General sentiment towards KiwiSaver Two in three believe KiwiSaver is a positive way to save for retirement Working New Zealanders were asked how they would rate KiwiSaver as a way to save for retirement. The results have remained fairly stable since 2009, with 65% rating it as good, very good or excellent. While it s encouraging to see a high level of support for the scheme, this result also shows there is still more work to be done. The impact of market volatility was a common concern among those who view the scheme negatively, suggesting that more education is needed about the long-term nature of KiwiSaver, the performance of this type of investment over time, and the balance between risk and reward. Highlighting the benefits of the scheme, in clear and accessible language, also needs to be an ongoing priority. Figure 4 : Rating of KiwiSaver as a way to save for retirement 26% 27% 26% 30% 32% 28% 15% 15% 17% 16% 8% 11% 7% 5% 8% 8% 11% 11% Excellent Very good Good Fair Poor Don t know/ not sure Q. Generally speaking, how would you rate the KiwiSaver scheme as a way to save for retirement? 10 SECURING RETIREMENT INCOMES

13 At a subgroup level, ratings of the KiwiSaver scheme as a way to save for retirement were stronger among those: Currently in the scheme Prepared for retirement Knowledgeable about the scheme Aged 45+ and female Table 2 : Subgroup differences in rating of KiwiSaver Generally speaking, how would you rate the KiwiSaver scheme as a way to save for retirement? Currently in a KiwiSaver scheme Preparation for retirement Knowledge of KiwiSaver Yes No Unprepared Prepared High Low Male Female Actively against Skeptical reserved (n=615) (n=378) (n=835) (n=151) (n=707) (n=296) (n=215) (n=372) (n=416) (n=468) (n=535) (n=304) (n=313) (n=199) (n=187) Excellent 17% 2% 10% 18% 14% 4% 7% 11% 13% 9% 13% 3% 13% 15% 16% Very good 32% 15% 26% 28% 30% 15% 21% 25% 28% 24% 27% 15% 26% 32% 36% Good 29% 28% 28% 30% 31% 22% 33% 28% 26% 27% 29% 24% 32% 32% 24% Fair 14% 20% 17% 12% 14% 21% 16% 18% 16% 15% 18% 22% 16% 11% 13% Poor 3% 14% 7% 9% 5% 12% 11% 6% 7% 11% 5% 17% 4% 3% 4% Don t know / not sure 4% 21% 12% 4% 5% 26% 12% 12% 10% 14% 8% 18% 9% 7% 8% Age Gender Index embracing MERCER KIWISAVER SENTIMENT INDEX STUDY 11

14 Drivers of positive sentiment were focussed on: Perceptions the scheme is a good idea It is supported by employers, and Comfort in the role the Government is playing to help people to plan and prepare for their retirement. Mention was also made of the fact it is easy to join and contribute, and that it is a forced saving of funds which may not have otherwise been saved. Table 3: Positive elements of KiwiSaver Reasons for giving KiwiSaver a good / very good / excellent rating as a way to save for retirement % MENTION Alright / good / seems good / good way to save / good value / good idea 16% Subsided by my employer 13% Subsidised by government / happy government is helping / handouts from government / government backed 11% Easy / no hassle / simple / painless / easy to use / easy to join 9% Deduct directly from wages / comes out of salary 9% Don't see it / don't notice contributions coming out / doesn't impact take home pay 9% Forces me to save / makes others save / compulsory 9% Helps me save / would not save otherwise 7% Little bit extra money on retirement / will have some savings / won't need to rely on super / will contribute / compliment government help 6% $1000 kickstart / tax credits / tax free 5% Compound little amounts mount up / start early have more / builds up to something substantial / building up 5% Positive that you can't access funds until retire / can't dip into funds 5% Good for people who have no idea about saving / investments / bad at saving 4% Good returns / solid returns / good ROI / high interest 4% Incentives to save / excellent benefits 6% Don't need to think about it / automatic / save without realising 4% Better than nothing / beats having no scheme / gets ball rolling / start saving somewhere / helps a bit / just wanted to save a bit more 3% Long term savings put aside for future / saving for my future / for long run 3% Good for most people / for average worker / for many people / for everyone / a lot of people are in it 4% Secure / low risk / balanced 2% Accessible everyone can participate / easy to get into / easy to join / even for young people 2% Need to save for own future / better than relying on government for retirement costs / puts onus on individual to save 2% Good range of providers / can elect provider / trustworthy providers 2% Can choose level of risk / level of investment 1% Positive that set up by government / government backed 1% Can keep track of investment / good info / updates 1% Base: Rate KiwiSaver as a good / very good / excellent way to save for retirement; n= SECURING RETIREMENT INCOMES

15 What respondents said... On their perception of whether the scheme is a good idea And their comfort in the role the government and employer is playing to help people plan and prepare for their retirement : A good deal getting government and employer contribution. Because it is the only bank account I have where I cannot touch the money and it makes me so happy that the government is helping us. I would not be able to save as much as I have if it wasn t for employer contributions and the $1000 kick start. In fact, I wouldn t be saving for retirement if there was no KiwiSaver. I would not have given retirement a thought. Because of the compulsory contributions by employers and the government. Because everyone can participate, you don t need a lot of financial skill or knowledge but can elect one of the government nominated providers. Also your employers must contribute which I think is something they should do. Because you save without having to think about it. Because it forces you to save and you can t get the money easily like you can from your own bank account. By taking payments from my salary, and with the employer contributions, you do not notice the deductions as much. Because it has made me focus on saving for retirement. Because it is a no-stress way to go about it. Payments are deducted out of wages/salaries and there is no need to make complicated arrangements. I believe it should be compulsory. Encourages greater savings for New Zealanders via employer and Government tax credits. Although employer contributions are capped at 2%, it is almost a 100% or 50% return on investment on those employees contributing at 2% or 4% respectively. The tax credits also provide an incentive to save for retirement. MERCER KIWISAVER SENTIMENT INDEX STUDY 13

16 Why did some rate KiwiSaver as a fair or poor way to save for retirement? While many believed KiwiSaver is a good way to save for retirement, some Kiwis expressed concerns about the scheme, rating it as a fair (16%) or poor (8%) way to save for retirement. In 2009, concerns were primarily focused on the perceived lack of guarantee and specific concerns about the future viability of the scheme. In particular, participants expressed concern about the accessibility of the funds in the future, questioning the stability of KiwiSaver providers (and consequently the safety of their funds) and the impact of frequent changes to the legislation. In 2012, these concerns continued to be mentioned, however, there was also a marked increase in broader concerns specifically around the impact of share market volatility on superannuation. Other concerns centred on a lack of understanding of the scheme and a preference for other investments. These findings suggest there is still a moderate level of uncertainty and caution when it comes to saving for retirement through the KiwiSaver scheme. Table 4: Negative elements of KiwiSaver Reasons for giving KiwiSaver a fair / poor rating as a way to save for retirement Insecure / potential loss: GFC & negative effect on savings / based on shares so high risk / vulnerable to global economy / managed funds so level of risk / if money does not get lost / not totally secure / no guarantee will be there / not safe Mistrust of government / New government might change / risk government will change / government may stop paying pensions / tax on those who work to fund those who don't / another way for government to take my money / government cutting their share in half / government will dump etc No faith in scheme / other negative comment about scheme mistrust long term / a scam / keeps changing many hiccups / could use some mprovements / not sustainable / don't trust it / pity no mortgage diversion anymore / unreliable / government contributions should have increased etc % MENTION 17% 15% 13% Better / other alternatives available - company super / better paying off mortgage / sharemarket 10% No knowledge of Kiwisaver / don't know enough / don't know much / little knowledge / have not thought about it 10% Won't be enough / don't know how much it will help / not enough to live on / need higher contributions 7% Not for everyone helps some people / only for those earning good money / not fair for young / not for those moving overseas / not for self employed / not best value for young 6% Negative that you can't access funds until retire / not easy to access 6% Better to do self / save better on my own / no advantage over doing self 6% Poor returns / returns vary 5% Fees too high / fees paid to manager of funds / fees vary / fees 3% Too late for me / not able to benefit as much / should have been done earlier / joined too late 2% Not flexible enough - don't like being told how much to pay / want to vary amounts / not enough autonomy over funds / not enough control over investments / make easier to change % of investment / not enough ethical investment options 2% Base: Rate KiwiSaver as only a fair or poor way to save for retirement, n= SECURING RETIREMENT INCOMES

17 What respondents said... On their concern about share market volatility: It's too expensive for low income families and the returns are poor due to risky investment. Anything based on shares carries an element of risk. No way to cancel it. Still has risk and don t trust the money to still be there when it would be needed. Should have the option to opt out whenever you want....uncertainty comes from the risk profile of your scheme, and how vulnerable it is to fluctuations in the wider economic environment. Good planning can help with that, but to a certain extent the growth of your investment is determined by the global economy. On their concern about the government s role: Cannot trust the Government, they pulled the plug on the one I was in 40 ago, that was for my retirement. No faith in politicians. I see it as risky, not something I want to invest in, not enough autonomy over my own funds. Risk that government will change it. It s still in early stages and there is still the risk a change in government could mess things around. MERCER KIWISAVER SENTIMENT INDEX STUDY 15

18 Perceived benefit of the KiwiSaver scheme continues to grow among participants Sentiment among current participants continues to grow, with nearly all (92%) believing the scheme will be beneficial to their retirement savings - up from 89% in 2009 and a significant increase from the 70% observed just prior to the introduction of KiwiSaver in Indeed, nearly two in five (36%) believe it is very beneficial, up from 21% in Furthermore, the proportion who felt it was not at all beneficial has continued to decline, down from 7% to 4%. In light of ongoing debate regarding the Government s ability to adequately fund an ageing population through retirement, these results suggest that many appreciate the value of the scheme, and the need to be self-sufficient in retirement, at least to some degree. Figure 5 : Perceived benefit of KiwiSaver scheme 68% 52% 56% 36% 18% 21% 21% 7% 4% 9% 4% 4% Very beneficial Somewhat beneficial Not at all beneficial Don t know enough to comment Q. How beneficial do you believe the KiwiSaver scheme will be to you personally in helping you fund your retirement? (Note: In 2007, this question was asked of those who intended to join the KiwiSaver scheme. In 2009 and 2012, it was asked of those who had already joined a KiwiSaver scheme.) Positive perceptions on the benefits of the KiwiSaver scheme were higher among those who had knowledge of the scheme, and those who were more prepared for retirement. Not surprisingly, those with lower levels of understanding of the scheme were more uncertain about its potential benefits. Table 5 : Subgroup differences in perceived benefit of the scheme How beneficial do you believe the KiwiSaver scheme will be to you personally in helping you fund your retirement? Base: Currently participate in a KiwiSaver scheme Comfortable Uncomfortable Unprepared Prepared High Low Male Female Actively against Skeptical reserved (n=268) (n=312) (n=502) (n=103) (n=485) (n=130) (n=141) (n=223) (n=251) (n=266) (n=348) (n=74) (n=242) (n=151) (n=148) Very beneficial 40% 34% 36% 40% 41% 20% 39% 48% 25% 35% 37% 19% 28% 46% 49% Somewhat beneficial 53% 60% 56% 56% 54% 61% 55% 44% 66% 56% 55% 54% 64% 49% 49% Not at all beneficial 4% 4% 4% 4% 3% 5% 3% 3% 4% 4% 3% 15% 4% 1% 1% Don t know enough to comment Anticipated comfort in retirement Preparation for retirement Knowledge of KiwiSaver 3% 3% 5% 0% 2% 14% 3% 5% 4% 5% 4% 13% 4% 4% 1% Age Gender Index embracing 16 SECURING RETIREMENT INCOMES

19 Retirement readiness Preparations for retirement are on the radar for many Kiwis Nearly two in five (39%) claim to have given at least some thought and undertaken some preparation for retirement, while a further 15% have made many preparations. In comparison to previous waves of the study, there was an increase in those who had been giving retirement consideration. It is possible that increased awareness and engagement in superannuation and retirement planning in general has led to a more realistic assessment of one s own preparation for retirement. Of concern however, is that nearly half (45%) have given, at best, some thought to retirement but made very little (if any) preparations. It is important that New Zealanders have access to tools and services to help them start this process. Figure 6 : Preparation for retirement 30% 29% 33% 38% 39% 20% 21% 21% 24% 16% 9% 13% 1% 2% 2% I have not given much thought to retirement and have not made any preparations I have given some thought to retirement but made very little preparation I have given some thought to retirement and made some preparation but not nearly enough I have given a lot of thought to retirement and made many preparations I have given a lot of thought to retirement and I m fully prepared with no more to do Q. Thinking about retirement, which one of the following statements best applies to you? At a subgroup level, those who anticipate a comfortable life in retirement were significantly more likely to have made preparations for retirement. Of some concern was that 32% of survey participants aged 45+ had given very little thought to preparing for their retirement. Table 6 : Subgroup analysis of preparedness for retirement Thinking about retirement which of the following statements best applies to you? I have not given much thought to retirement and have not made any preparations I ve given some thought to retirement but made very little preparation Currently in a KiwiSaver scheme Yes No Comfortable Anticipated comfort in retirement Uncomfortable Attitude to KiwiSaver Knowledge of KiwiSaver Positive Negative High Low Male Female (n=615) (n=378) (n=410) (n=525) (n=654) (n=239) (n=707) (n=296) (n=215) (n=372) (n=416) (n=468) (n=535) (n=304) (n=313) (n=199) (n=187) 15% 28% 23% 16% 16% 24% 15% 33% 42% 17% 12% 21% 20% 32% 15% 16% 15% 21% 29% 24% 25% 21% 28% 21% 30% 31% 24% 20% 25% 23% 32% 22% 17% 20% Age Gender Actively against Skeptical Index reserved embracing I ve given some thought to retirement and made some preparations but not nearly enough I ve given a lot of thought to retirement and made many preparations 45% 29% 31% 47% 45% 33% 44% 26% 18% 43% 46% 36% 41% 24% 44% 47% 46% 15% 10% 19% 10% 16% 11% 16% 7% 7% 13% 17% 13% 13% 8% 16% 14% 16% I ve given a lot of thought to retirement and I m fully prepared with no more to do MERCER: KIWISAVER SENTIMENT INDEX STUDY 1% 2% 2% 1% 2% 1% 2% 1% 0% 1% 3% 2% 1% 1% 2% 3% 2% 17

20 Anticipated comfort level in retirement New Zealanders are beginning to realise that retirement may lead to a drop in income and consequently, a different standard of living. There is a growing proportion (52%) who believe they will be less comfortable in retirement than they are now, compared to only 42% saying the same in This realisation comes in the face of increasing levels of KiwiSaver participation, and a growing level of understanding around the role KiwiSaver can play in funding retirement. Ultimately, New Zealanders can see that increasing life expectancy, higher healthcare costs and an ageing population are all putting pressure on their ability to retire early and comfortably. One consequence of New Zealanders retirement reality check is they may stay in the workforce longer, given the opportunity to do so. For employers already struggling with skills shortages, this presents an important opportunity to retain much-needed knowledge and experience as long as they take the right approach. Employers will need to cater to the preferences of older workers and recognise they often want more flexibility, fewer hours and different financial incentives. While some employers may welcome employees staying in the workforce beyond age 65, on the other hand there are other employers looking for ways to help employees retire from the workforce. By encouraging employees to take an active interest in KiwiSaver, such employers could use the existence of healthy KiwiSaver balances as one means of helping to facilitate employees transition to retirement. 18 SECURING RETIREMENT INCOMES

21 Figure 7 : Anticipated comfort level in retirement 28% 29% 28% 21% 23% 24% 25% 22% 18% 14% 13% 12% 11% 8% 7% 6% 5% 7% A lot less comfortable than I am now A little less comfortable As comfortable as I am now A little more comfortable A lot more comfortable than I am now Don t know/ not sure Q. Compared to your lifestyle now, in retirement, do you believe financially you will be... Subgroup analysis reveals optimism is greater among those in the scheme, who have made preparations for retirement, are knowledgeable and younger (presumably with more time to save for retirement). Table 7 : Subgroup analysis of anticipated financial comfort in retirement Compared to your lifestyle now, in retirement, do you believe financially, you will be..? A lot / a little less comfortable than I am now Yes No Unprepared Prepared Positive Negative High Low Male Female (n=615) (n=378) (n=835) (n=151) (n=654) (n=239) (n=707) (n=296) (n=215) (n=372) (n=416) (n=468) (n=535) (n=304) (n=313) (n=199) (n=187) 51% 55% 55% 40% 53% 53% 52% 54% 30% 52% 64% 51% 54% 54% 45% 53% 60% As comfortable as I am now 22% 20% 20% 31% 22% 21% 23% 19% 20% 24% 20% 24% 20% 19% 23% 22% 22% A little / a lot more comfortable than I am now Currently in a KiwiSaver scheme Knowledge of Preparation for retirement Attitude to KiwiSaver Age KiwiSaver 21% 17% 19% 26% 21% 20% 20% 16% 41% 18% 9% 19% 20% 19% 24% 18% 15% Don t know / not sure 6% 8% 6% 3% 4% 6% 5% 12% 9% 6% 6% 6% 7% 8% 8% 8% 2% Gender Actively against Skeptical Index reserved embracing MERCER KIWISAVER SENTIMENT INDEX STUDY 19

22 Kiwis want to retire earlier... but remain realistic The average age of retirement varies by country. In the United Kingdom, the average age of retirement for men is 63 and 60 for women. In Denmark, it is 67 for both men and women. For Kiwis, the mean age at which survey participants would like to retire is 57. One in five (20%) would like to retire before they turn 55. Since 2007, this trend has not changed markedly. Interestingly, we saw a significant rise in uncertainty about the preferred retirement age perhaps a reflection of increased awareness of a) funding required for retirement and b) anticipated resources that will be available in retirement. Figure 8 : Preferred age of retirement 23% 25% 23% 23% 20% 9% 10% 10% 17% 13% 10% 15%14% 12% 16% 14% 17% 10% 4% 4% 4% 1% 1% 2% 1% 0% 2% Under Don t know Q. If your circumstances allowed, at what age would you like to cease working entirely? 20 SECURING RETIREMENT INCOMES

23 However, working New Zealanders are realistic. When asked the age they expect to retire, the mean age was eight later at 65. The overwhelming majority (67%) see themselves retiring when they are over the age of 65. Indeed, one in four (24%) see themselves retiring post 70 of age. This has implications for employers who need to consider their workforce projections in light of many anticipating working beyond the age of 65. Figure 9 : Anticipated age of retirement 48% 42% 43% 13% 14% 8% 12% 17% 18% 3% 4% 4% 1% 2% 2% 15% 13% 21% 2% 2% 1% 2% 2% 1% 3% 4% 2% Under Don t know Q. In reality, at what age do you expect to cease working entirely? MERCER KIWISAVER SENTIMENT INDEX STUDY 21

24 Greater reliance on super means less reliance on government In projections of the asset portfolio expected to be available to working Kiwis at retirement, superannuation accounted for on average, 31% of all potential funding. This was a significant increase on 2009 figures, where superannuation was anticipated to account for only 22%. Anticipated reliance on government assistance / aged pension fell, accounting for 24% (down from 27% in 2009), while a further 19% of retirement funding was anticipated to be from other assets (such as the home). The importance of KiwiSaver as an adjunct to the government-funded pension cannot be understated. Projections by Statistics New Zealand indicate that by 2051 those over 65 will comprise more than a quarter of the total population 2 and with life expectancy at birth predicted to increase to 85.6 for males and 88.7 for females by the retirement savings issue is imperative. In line with this ageing population, the cost of providing NZ Super is expected to double by the year 2060 (from 3.4% of GDP in 2007 to 6.9% in 2060). 4 In this context, it s conceivable that the level of pension funding provided by the public Figure 10 : Anticipated source of funding for retirement 22% 4% 20% 11% 16% 27% Government assistance / aged pension Inheritance Assets (such as home) Other savings (cash management accounts, term deposits) Investments such as property, shares, bonds, debentures Superannuation (including KiwiSaver or an employer sponsored superannuation scheme) purse will be significantly lower than it is today. It is crucial to help New Zealanders recognise the benefits of building private savings today, to ensure a comfortable retirement tomorrow. 27% 6% 19% 12% 14% 22% 24% 5% 19% 10% 11% 31% Q. People fund their retirement in different ways. We would like you to indicate how you plan to fund your retirement by showing an estimate of percentages that will make up the resources you anticipate will be available to you on retirement. 2. The Treasury Working Paper 2010 Healthy, Wealthy and Working: Retirement Decisions of Older New Zealanders available at: publications/research-policy/wp/2010/10-02/00.htm 3. Statistics New Zealand available at: 4. The Treasury Savings Working Group Saving New Zealand: Reducing Vulnerabilities and Barriers to Growth and Prosperity: Final Report to the Minister of Finance available at: 22 SECURING RETIREMENT INCOMES

25 Subgroup analysis reveals that: Not surprisingly, superannuation is projected to play a bigger role in retirement funding among those in a KiwiSaver scheme, with an average of 39% of all funding coming from super, compared to 19% for those not in a KiwiSaver scheme Anticipated reliance on superannuation was higher among those aged 30 44, and those with a positive attitude towards the KiwiSaver scheme Anticipated reliance on government funding was higher among those less prepared for retirement, those who are older and those with lower levels of knowledge about KiwiSaver and not in the scheme. Table 8 : Subgroup analysis on anticipated sources of retirement funding Currently in a KiwiSaver scheme Preparation for retirement Attitude to KiwiSaver Knowledge of KiwiSaver Age Gender Index Superannuation (including KiwiSaver or an employer sponsored superannuation scheme) Investments such as property, shares, bonds, debentures Other savings (cash management accounts, term deposits) Yes No Unprepared Prepared Positive Negative High Low Male Female (n=615) (n=378) (n=835) (n=151) (n=654) (n=239) (n=707) (n=296) (n=215) (n=372) (n=416) (n=468) (n=535) (n=304) (n=313) (n=199) (n=187) 39% 19% 30% 36% 36% 23% 33% 27% 30% 37% 27% 31% 32% 3% 21% 46% 79% 10% 13% 10% 18% 10% 15% 11% 9% 14% 10% 10% 12% 10% 14% 14% 8% 3% 10% 12% 10% 10% 10% 13% 9% 13% 18% 9% 8% 11% 10% 14% 11% 9% 5% Actively against Skeptical reserved embracing Assets (such as home) 16% 23% 19% 17% 16% 23% 19% 18% 18% 20% 18% 19% 18% 27% 22% 14% 5% Inheritance 4% 6% 5% 4% 4% 5% 5% 5% 6% 5% 4% 5% 4% 7% 6% 3% 1% Government assistance / aged pension 22% 27% 26% 15% 24% 21% 22% 28% 14% 19% 33% 22% 26% 35% 27% 19% 7% MERCER KIWISAVER SENTIMENT INDEX STUDY 23

26 Participation in KiwiSaver Participation rates have grown significantly Just over three in five (61%) surveyed respondents said they were participants in a KiwiSaver scheme. This participation suggests that New Zealanders are taking responsibility for their own retirement and understand the need to have an adequate retirement savings plan in place. It also demonstrates the early success of government policy in encouraging a savings culture among Kiwis, by way of introduction of the 2% contribution rate. Figure 11 : Participation in a KiwiSaver scheme 61% 44% Now is the time to capitalise on these Q. Do you currently participate in a KiwiSaver scheme? participation rates and drive even higher take-up of the scheme. If the Government is able to return the Budget to surplus by 2014/15 or beyond, it will introduce auto-enrolment for KiwiSaver and further boost participation. However KiwiSaver providers still play a crucial role in the meantime, by continuing to deliver quality service and competitive returns. Employers, too, can act as strong advocates for the KiwiSaver scheme and position it as a value-add they provide to employees. Subgroup analysis reveals participation rates in KiwiSaver are higher among those who have a positive attitude towards the scheme and have high levels of knowledge about KiwiSaver. Conversely, those who do not participate in KiwiSaver have a negative attitude towards it, and have low levels of knowledge about the scheme. Table 9 : Subgroup differences in participation in KiwiSaver Do you currently participate in a KiwiSaver scheme? Anticipated comfort in retirement Comfortable Uncomfortable Preparation for retirement Attitude to KiwiSaver Knowledge of KiwiSaver Unprepared Prepared Positive Negative High Low Male Female (n=410) (n=525) (n=835) (n=151) (n=654) (n=239) (n=707) (n=296) (n=215) (n=372) (n=416) (n=468) (n=535) (n=304) (n=313) (n=199) (n=187) Participate 65% 59% 60% 69% 73% 45% 69% 44% 65% 60% 60% 57% 65% 24% 77% 76% 79% Do not participate 35% 39% 39% 31% 26% 53% 31% 53% 33% 40% 38% 41% 34% 74% 22% 23% 20% Age Gender Actively against Skeptical Index reserved embracing 24 SECURING RETIREMENT INCOMES

27 Most Kiwis are satisfied with their KiwiSaver provider KiwiSaver scheme members were asked how satisfied they were with their current provider. Satisfaction levels have increased, with over half (54%, up from 49% in 2009) saying they were either satisfied or very satisfied. A sizeable proportion (41%) were middle of the road in their satisfaction with KiwiSaver, while very few (5%) were dissatisfied. While an increase in satisfaction is good news, it is something that we can build upon further. Moreover, many members have only been in the scheme for a short time, so KiwiSaver providers need to take the long view and foster good member relationships over what may be several decades. Mercer continues to focus on delivering responsive service, quality educational material, value for money and of course, competitive returns, in order to build loyalty and satisfaction. Retirement saving is a lifetime project, and we invest in building lifetime relationships. Figure 12 : Satisfaction with current KiwiSaver scheme provider 2% 2% Very dissatisfied 4% 3% Dissatisfied 45% 41% Neither satisfied nor dissatisfied 39% 42% Satisfied 10% 12% Very satisfied (Base: Currently in a KiwiSaver scheme, n=615) Q. How satisfied are you with your current KiwiSaver scheme provider? Subgroup analysis reveals that satisfaction tends to be higher among those who consider themselves prepared for retirement, those with a positive attitude towards the scheme, and who are aged over 45. Satisfaction with KiwiSaver providers is generally lower among those with a negative attitude towards the scheme, and those with lower levels of confidence in their knowledge about KiwiSaver. Table 10 : Subgroup differences in satisfaction with current KiwiSaver scheme provider Satisfaction with current KiwiSaver scheme provider Base: Participants in a KiwiSaver scheme Preparation for retirement Attitude to KiwiSaver Knowledge of KiwiSaver Unprepared Prepared Positive Negative High Low Male Female Actively against Skeptical reserved (n=502) (n=103) (n=481) (n=108) (n=485) (n=130) (n=141) (n=223) (n=251) (n=266) (n=348) (n=74) (n=242) (n=151) (n=148) Very dissatisfied 2% 0% 1% 3% 1% 3% 1% 2% 1% 2% 1% 2% 1% 3% 1% Dissatisfied 4% 1% 2% 6% 2% 7% 5% 4% 2% 4% 3% 7% 3% 3% 2% Neither 44% 31% 34% 72% 36% 60% 46% 40% 40% 42% 41% 49% 46% 37% 34% Satisfied 41% 48% 48% 18% 47% 25% 38% 45% 43% 44% 41% 32% 39% 46% 49% Very satisfied 10% 20% 15% 1% 13% 5% 10% 9% 14% 9% 13% 10% 11% 11% 14% Age Gender Index embracing MERCER KIWISAVER SENTIMENT INDEX STUDY 25

28 Loyalty to current KiwiSaver scheme providers Loyalty among members to their current KiwiSaver schemes has remained stable. Results indicate that for the most part, members are likely to remain within their current arrangement for the next 12 months. Figure 13 : Likelihood to remain with current provider in next 12 months 35% 37% 39% 38% 21% 19% 3% 2% 2% 4% Very unlikely Unlikely Neither likely nor unlikely Likely Very likely (Base: Currently in a KiwiSaver scheme, n=615) Q. How likely are you to remain with your current KiwiSaver scheme provider in the next 12 months? Subgroup analysis reveals that loyalty to their current KiwiSaver scheme providers is greater among those with higher levels of knowledge about KiwiSaver and who view it positively. Those unlikely to remain with their current provider tend to be less prepared for retirement and have a negative view of the scheme. Table 11 : Subgroup differences in loyalty to current KiwiSaver scheme provider How likely are you to remain with your current KiwiSaver scheme provider in the next 12 months? Anticipated comfort in retirement Uncomfortable Comfortable Preparation for retirement Attitude to KiwiSaver Knowledge of KiwiSaver Unprepared Prepared Positive Negative High Low Male Female (n=268) (n=312) (n=502) (n=103) (n=481) (n=108) (n=485) (n=130) (n=141) (n=223) (n=251) (n=266) (n=348) (n=74) (n=242) (n=151) (n=148) Age Gender Actively against Skeptical Index reserved embracing Very unlikely 2% 3% 2% 1% 1% 3% 2% 3% 2% 2% 2% 3% 1% 3% 1% 3% 2% Unlikely 4% 4% 4% 3% 3% 4% 3% 4% 3% 3% 4% 4% 3% 6% 3% 4% 2% Neither likely nor unlikely 19% 19% 20% 16% 16% 34% 17% 28% 23% 22% 15% 21% 19% 26% 22% 15% 17% Likely 37% 36% 38% 34% 36% 42% 36% 39% 31% 40% 37% 38% 35% 35% 41% 35% 33% Very likely 39% 39% 37% 46% 44% 18% 41% 27% 41% 32% 42% 35% 41% 30% 32% 44% 47% 26 SECURING RETIRMENT INCOMES

29 What are Kiwis looking for in retirement savings schemes? Working New Zealanders were asked to rate the importance of various features of a retirement savings scheme. Of greatest importance were competitive fees and investments (specifically quality and performance), along with access to easy and readily understood communication material. Figure 14 : Important features in Retirement Savings Schemes Competitive fees Quality of management of investments 15% 41% 17% 38% 41% 42% History of good investment performance Easy to understand and use communication material Access to a member website that allows you to check your balance and change your investment A choice of investment options Access to information to help plan / prepare for retirement Access to responsible investment options Managed by a known brand Access to individual financial planning advice Access to a Helpline Service Access to discounted health insurance Access to discounted home loans Access to income protection insurance Sponsored or endorsed by your employer Access to life insurance Access to a branch Access to financial education seminars Access to mobile app Access to information via social media 17% 37% 43% 18% 42% 37% 19% 41% 36% 21% 48% 28% 22% 48% 27% 22% 48% 27% 27% 43% 25% 29% 44% 20% 31% 41% 22% 30% 40% 21% 29% 35% 24% 33% 38% 20% 34% 34% 18% 35% 35% 16% 40% 32% 13% 47% 27% 9% 40% 18% 7% 36% 11% 4% Very unimportant Unimportant Neither Important Very important Q. Thinking about the features of a retirement savings scheme, on a scale of 0 to 10 where 0 is very unimportant and 10 is very important, please rate how important you consider each of the following features to be. 27

30 Ways retirement savings schemes can help Working New Zealanders were asked to identify ways retirement savings schemes can help members get the most from their retirement savings. Focussing on the positive aspects of a retirement savings scheme, participants cited the provision of funds at retirement, providing high returns / interest on investments and helping New Zealanders budget and save, as key benefits of KiwiSaver. Table 12 : Ways retirement savings schemes can help members get the most from their retirement savings Ways retirement savings schemes can help members get the most from their retirement savings % MENTION More money at retirement / get more money / safety net at retirement / making money / extra funds to live on / financial start / healthy balance at maturity / more savings Good return / better return / high yield investments 7% Helps me budget my money / helps me save / encourage saving 7% Subsidised by the company / employer / matched by my employer 6% Can't withdraw money until retire / locked in until 65 / locks money away / difficult to withdraw 6% Compound interest / allow it to build up / continue to grow / grow through time / start when young / interest can accumulate Safe investments / no bad investments / secure / low risk / spreading risks / balanced risk 4% Forced savings / compulsory 4% More comfortable retirement / better standard of living when retire / maintain current lifestyle 4% High interest earnings / getting interest / interest 3% Regular savings / regular contributions / save continually / consistently 3% Put money away for future / long term savings / long term plan / for future 3% To supplement existing superannuation scheme / pension 3% Good advice / knowledge on investments/ help you choose the best way to save your money and earn interest / invest savings wisely / invested by experts Affordable payments / small amounts / small increments / minimal impact on current life 2% Deduct directly from wages so don't miss 2% Invested now and/or later / having funds invested / invested on your behalf 2% Subsidised by the government 2% Bonus $1,000 kickstart when commence / bonus incentives / tax credits 2% Clear information about investments / simplified information / make easy to understand 2% Automatic / save without thinking / without having to worry about 1% Flexible withdrawals / can withdraw money when needed / can use for emergencies 1% Paying out over period of time / weekly payments to you / provides an income / external income / draw down when retire Q: How can retirement savings schemes help you get the most from your retirement savings? 8% 5% 3% 1% 28 SECURING RETIREMENT INCOMES

31 Around half actively selected their KiwiSaver provider Prior to the launch of KiwiSaver, the majority (73%) anticipated they would nominate a provider upon joining the scheme. Fewer anticipated deferring to Inland Revenue or their employer for allocation to a default super fund. This didn t quite eventuate though: in 2012, over half (58%) actively chose their own provider, while nearly two in five (37%) either let Inland Revenue, or their employer make the decision on their behalf. This result underlines a broader issue around retirement savings: disengagement. It is an ongoing challenge to encourage individuals to take action on something that is, for many, a long way into the future. This has certainly been the case in Australia, where compulsory superannuation has been in place for decades, but most Australians remain disengaged from it. In fact, the Mercer Superannuation Sentiment Index December 2011 found 1 in 5 Australian super fund members do not know which provider their savings are invested with. This is a cautionary tale for New Zealand when retirement saving becomes an automatic choice, it can lead to a mindset that someone else is taking care of it for me. But if we want to build New Zealand s retirement savings significantly, we must also continue to build interest in KiwiSaver, encourage extra contributions and create a sense of ownership for members. Mercer invests significant resources in marketing and communication to members, and we encourage employers to make use of such material to connect with employees and play a part in meeting New Zealand s retirement challenge. Figure 15 : Selection of a KiwiSaver provider 73% 55% 58% Q. Did you choose a KiwiSaver provider yourself, or did you allow your contributions to be directed into a default provider as determined by Inland Revenue? 26% 17% 11% 4% 16% 20% 12% 3% 5% I chose a provider myself I let Inland Revenue make a decision for me I let my employer make the decision for me Dont know / not sure Intention in (Base: Currently in KiwiSaver, n=615) MERCER KIWISAVER SENTIMENT INDEX STUDY 29

32 Subgroup analysis reveals propensity to actively select a KiwiSaver provider was higher among those knowledgeable about KiwiSaver, and those who are prepared for retirement. Reliability on Inland Revenue was greater among those unprepared for retirement, while the decision was left to employers among those with low levels of knowledge about the scheme. Table 13 : Subgroup analysis of selection of a KiwiSaver provider Did you choose a KiwiSaver provider yourself, or did you allow your contributions to be directed into a default provider as determined by the Inland Revenue Department? Preparation for retirement Attitude to KiwiSaver Knowledge of KiwiSaver Unprepared Prepared Positive Negative High Low Age Gender 45+ Male Female Actively against Skeptical Index reserved embracing Base: Participate in a KiwiSaver scheme (n=502) (n=103) (n=481) (n=108) (n=485) (n=130) (n=141) (n=223) (n=251) (n=266) (n=348) (n=74) (n=242) (n=151) (n=148) I chose a provider myself 56% 70% 61% 52% 63% 42% 56% 57% 61% 59% 58% 55% 55% 64% 60% I let the Inland Revenue Department make a decision for me I let my employer make the decision for me 18% 13% 16% 18% 16% 17% 18% 15% 16% 18% 16% 16% 18% 13% 17% 20% 17% 19% 22% 18% 29% 16% 24% 19% 18% 22% 22% 21% 19% 19% Don t know / not sure 6% 0% 4% 8% 3% 12% 9% 4% 3% 5% 5% 7% 6% 4% 4% Most think a 2% contribution level is acceptable In 2007, the lowest contribution level available was 4%, and the vast majority (78%) of those who intended to join KiwiSaver indicated their intent to contribute at this level. However, in April 2009, a 2% contribution level was introduced, which has proven popular and has encouraged more Kiwis to join KiwiSaver. In 2012, more than two in five (41%) make contributions at the 2% level (up from 29% in 2009), while a further 44% contribute at a 4% level. Encouraging individuals to save for the future can be difficult, so the Government made a wise decision to move to a more manageable 2% minimum. But it s crucial that this is seen as a starting point, not an end point. Moreover, employers need to recognise that financial commitment is shifting from the Government to employers, having just moved to 3%. This higher level of employer contribution may increase the scheme s attractiveness to employees, so employers need to consider how they budget for this increased cost. Australia has incrementally moved to a 9% compulsory superannuation contribution level, and will increase to 12% by significantly more than New Zealand s 3%. While we don t suggest that New Zealand must replicate this model, it does demonstrate the community will accept the benefits of higher savings rates if introduced over time. As we continue to live longer, New Zealanders will likely spend longer in retirement, so building a nest egg that can last several decades requires significant investment. The more we can educate New Zealanders around how much is enough and what level of contributions are required to make a difference, the greater the impact that KiwiSaver will have on providing a comfortable retirement for everyone. 30 SECURING RETIREMENT INCOMES

33 Figure 16 : Percentage of gross salary contributions made to KiwiSaver 78% 41% 46% 44% 29% 0% 14% 9% 6% 2% 2% 2% 0% 0% 2% 5% 14% 5% 2% of salary 4% of salary 8% of salary Some other % of salary Currently on a contributions holiday Don t know / not sure (Base: Plan to join or have already joined, n=690) Q. You mentioned you either have joined or may join a KiwiSaver scheme in the next 12 months. What percentage of your pretax (gross) salary do you currently, or do you plan to contribute to your KiwiSaver scheme as required by legislation? The 2% level of contribution is particularly popular among younger working New Zealanders (those aged under 45) and females, while the 8% level is more popular among males and those who have made preparations for retirement. Table 14 : Subgroup analysis on salary contributions to KiwiSaver You mentioned you either have joined or may join a KiwiSaver scheme in the next 12 months. What percentage of your pre-tax (gross) salary do you currently or do you plan to contribute to your KiwiSaver scheme as required by legislation? Preparation for retirement Attitude to KiwiSaver Knowledge of KiwiSaver Unprepared Prepared Positive Negative High Low Age Gender Index Male Female Actively against Skeptical reserved embracing Base: Likely to join in next 12 months or have already joined (n=575) (n=103) (n=531) (n=121) (n=530) (n=160) (n=157) (n=244) (n=288) (n=305) (n=385) (n=108) (n=262) (n=166) (n=155) 2% of salary 42% 34% 40% 48% 40% 43% 41% 46% 36% 37% 44% 35% 43% 39% 45% 4% of salary 44% 46% 46% 36% 45% 39% 41% 40% 48% 42% 45% 45% 44% 49% 37% 8% of salary 5% 15% 7% 6% 7% 5% 7% 5% 7% 8% 4% 6% 6% 6% 7% Some other % of salary 2% 2% 2% 0% 2% 1% 0% 3% 1% 3% 1% 1% 0% 2% 4% Don t know / not sure 5% 3% 3% 5% 4% 8% 5% 4% 5% 7% 3% 10% 4% 2% 5% On a contributions holiday 3% 2% 2% 5% 2% 3% 6% 1% 2% 3% 2% 3% 3% 3% 1% MERCER KIWISAVER SENTIMENT INDEX STUDY 31

34 How does participation in KiwiSaver affect household budgets? The perceived impact of KiwiSaver contributions on householders ability to manage expenses reduced significantly since the introduction of the scheme and the availability of a 2% contribution rate. One in three (30%) says making contributions has no impact at all on their budget, while a further 36% say it has only a small impact. It is interesting to note that two thirds of survey respondents indicated that making a contribution to KiwiSaver had only a limited impact on managing household expenses. This signals a significant opportunity for KiwiSaver scheme providers to further engage their members as the majority does not view making contributions as a barrier in participating in a KiwiSaver scheme. To help working New Zealanders build their retirement savings, the Government has created a Member Tax Credit Scheme. For every dollar that a member contributes, the Government will contribute 50 cents directly into the member s KiwiSaver scheme account, up to a total of $521 per annum. Analysis among KiwiSaver scheme members reveals that nearly half of members miss out this potential benefit each year, because they do not make adequate (or any) contributions to qualify for the Member Tax Credit. This presents a great opportunity for providers to educate their members on the advantages of KiwiSaver, and to highlight the support the Government is making in helping working New Zealanders prepare and fund their retirement. 32 SECURING RETIREMENT INCOMES

35 Figure 17 : Impact of contributions Q. To what extent will KiwiSaver Making contributions does/will have a big impact on my ability to meet regular household expenses 10% 17% contributions impact on your ability to meet your regular household expenses? 8% 29% Making contributions does/will have a moderate impact 29% 26% 40% Making contributions does/will have a small impact 40% 36% Making contributions does/will have no impact at all on my ability to meet regular household expenses 14% 21% 30% (Base: Plan to join or have already joined, n=690) Subgroup analysis reveals that participants experiencing the greatest belt tightening are those who are unprepared for retirement, aged and who have lower levels of knowledge about KiwiSaver. Table 15 : Subgroup analysis of impact of contributions on household budget To what extent do or will KiwiSaver contributions impact on your ability to meet your regular household expenses? Base: Currently in or likely to join a KiwiSaver scheme Making contributions will have a big impact on my ability to meet regular household expenses Making contributions will have a moderate impact Making contributions will have a small impact Making contributions will have no impact at all on my ability to meet regular household expenses Currently in a KiwiSaver scheme Preparation for retirement Attitude to KiwiSaver Knowledge of KiwiSaver Yes No Unprepared Prepared Positive Negative High Low Age Gender Index Male Female (n=615) (n=75) (n=575) (n=103) (n=531) (n=121) (n=530) (n=160) (n=157) (n=244) (n=288) (n=305) (n=385) (n=108) (n=262) (n=166) (n=155) 8% 7% 9% 3% 8% 10% 9% 7% 4% 11% 8% 8% 8% 9% 8% 8% 8% 24% 45% 28% 17% 25% 28% 24% 32% 27% 26% 26% 26% 26% 31% 22% 25% 31% 35% 39% 36% 32% 34% 41% 35% 38% 35% 32% 39% 38% 33% 40% 39% 37% 26% 33% 9% 27% 47% 33% 21% 32% 24% 34% 31% 27% 27% 32% 20% 31% 30% 35% Actively against Skeptical reserved embracing MERCER KIWISAVER SENTIMENT INDEX STUDY 33

36 Participation in a workplace savings scheme Coinciding with an increase in the proportion of New Zealanders participating in a KiwiSaver scheme, it is not surprising to see a decline in the proportion participating in an employer workplace savings scheme only one in five (21%) indicated they are taking part in a workplace savings scheme compared to one in three (32%) saying the same in The declining popularity of such schemes raises important questions for employers, including: How does KiwiSaver fit into existing benefit design and align with employer objectives? Should employers continue with existing plans or run solely with KiwiSaver? How do employers differentiate themselves in order to attract talent? Some employers will want to promote KiwiSaver and its preservation rules, while other employers may be motivated to provide alternative vehicles to KiwiSaver where the benefit is available on leaving service. In the latter scenario, employers may view super as deferred pay which becomes available upon leaving the employer. Compared with an existing employer subsidised super plan, for many the only financial advantage that KiwiSaver now offers is the $521 per annum Member Tax Credit. The key here is to consider KiwiSaver within a broader approach to remuneration and reward. Figure 18 : Participation in a workplace savings scheme through your employer 27% 32% 21% Q: Do you currently participate in a workplace savings scheme through your employer? Mirroring those who participate in a KiwiSaver scheme, participants of an employer workplace savings scheme tend to be prepared for retirement, hold a positive view of KiwiSaver, have a higher level of knowledge of KiwiSaver and are older (aged 45+). Table 16 : Subgroup analysis of participation in an employer workplace savings scheme Do you currently participate in a workplace savings scheme through your employer? Anticipated comfort in retirement Comfortable Uncomfortable Preparation for retirement Attitude to KiwiSaver Knowledge of KiwiSaver Unprepared Prepared Positive Negative High Low Age Gender 45+ Male Female Actively against Skeptical Index reserved embracing (n=410) (n=525) (n=835) (n=151) (n=654) (n=239) (n=707) (n=296) (n=215) (n=372) (n=416) (n=468) (n=535) (n=304) (n=313) (n=199) (n=187) Participate 20% 22% 18% 36% 22% 15% 23% 14% 11% 21% 26% 22% 19% 9% 22% 30% 26% Do not participate 76% 76% 78% 62% 74% 81% 74% 78% 82% 75% 71% 73% 77% 88% 72% 66% 70% Don't know 4% 2% 4% 2% 3% 4% 3% 8% 7% 4% 3% 5% 4% 3% 6% 4% 4% 34 SECURING RETIREMENT INCOMES

37 MERCER KIWISAVER SENTIMENT INDEX STUDY 35

38 Government policy Mercer sought to understand Kiwis views on the future policies surrounding the KiwiSaver scheme. There was an increased mention of the importance of encouraging providers to reduce fees, up from 13% to 21%. This is at the expense of interest in a reduction in tax on investment earnings and policies promoting increased contribution levels. Figure 19 : Preferred future actions Reduce tax on investment earnings 30% 35% Develop policies which encourage employers to contribute more to their employees KiwiSaver schemes 18% 19% Encourage KiwiSaver providers to reduce fees 13% 21% Develop policies which encourage employees to contribute more to their KiwiSaver scheme 7% 11% Not make any future changes to KiwiSaver 5% 6% Develop policies which encourage employees to salary sacrifice contributions to their KiwiSaver scheme 3% 3% Don t know / not sure 15% 14% Q. Thinking about the future of KiwiSaver, which of the following, if any, do you believe the NZ Government should undertake in the next few months? 36 SECURING RETIREMENT INCOMES

39 Subgroup analysis reveals those with low levels of knowledge about KiwiSaver and reported they are unprepared for retirement were more uncertain about preferred government actions, while those currently in a scheme were more likely to mention increased employer contributions and tax reductions on investment earnings as preferred future government actions. Table 17 : Subgroup analysis on future of KiwiSaver scheme Thinking about the future of KiwiSaver, which of the following, if any, do you believe the NZ Government should undertake in the next few months? Reduce tax on investment earnings Develop policies which encourage employers to contribute more to their employees' KiwiSaver schemes Encourage KiwiSaver providers to reduce fees Develop policies which encourage employees to contribute more to their KiwiSaver scheme Not make any further changes to KiwiSaver Develop policies which encourage employees to salary sacrifice contributions to their KiwiSaver scheme Currently in a KiwiSaver scheme Preparation for retirement Attitude to KiwiSaver Knowledge of KiwiSaver Yes No Unprepared Prepared Positive Negative High Low Male Female (n=615) (n=378) (n=835) (n=151) (n=654) (n=239) (n=707) (n=296) (n=215) (n=372) (n=416) (n=468) (n=535) (n=304) (n=313) (n=199) (n=187) 33% 27% 30% 34% 31% 32% 31% 29% 32% 31% 29% 32% 29% 29% 27% 32% 36% 21% 15% 20% 16% 21% 16% 20% 15% 21% 19% 18% 19% 19% 13% 19% 24% 21% 22% 19% 21% 23% 23% 17% 21% 19% 19% 21% 21% 21% 21% 20% 24% 21% 17% 7% 6% 7% 7% 9% 4% 8% 5% 5% 5% 9% 7% 7% 6% 9% 6% 6% 4% 9% 6% 8% 6% 8% 7% 4% 7% 5% 6% 5% 7% 7% 6% 4% 6% 3% 2% 3% 3% 3% 4% 3% 2% 1% 3% 4% 3% 3% 4% 3% 3% 2% Age Gender Actively against Skeptical Index reserved embracing Don t know / not sure 10% 22% 15% 8% 6% 20% 10% 24% 15% 16% 12% 14% 14% 21% 12% 8% 13% 37

40 Knowledge of saving for retirement generally A positive correlation has been observed between the level of confidence in understanding of KiwiSaver, participation and sentiment. Kiwis were asked how they would rate their level of knowledge about superannuation generally. While one in five (21%) rated their level of knowledge about superannuation/ ways to save for retirement highly, 55% would like to have more knowledge - at the strong/sophisticated level. The implication and opportunity is clear: many people have a thirst for more information about retirement saving. This is not something that KiwiSaver providers, the Government or employers can address alone they all have a role to play in providing clear information, in formats and language that appeal to a range of audiences. Understanding of retirement savings schemes Figure 20 : Knowledge of retirement savings scheme Current rating of knowledge of superannuation and ways to save for retirement Aspirational rating of knowledge of superannuation and ways to save for retirement 4% 12% Sophisticated 17% 43% Strong 50% 36% Moderate 24% 6% Minimal 4% 3% Nothing Q: On a scale of 0 10, how would you rate your current level of knowledge about superannuation and ways to save for retirement? Q: On a scale of 0 10, how would you like to rate your current level of knowledge about superannuation and ways to save for retirement? 38 SECURING RETIREMENT INCOMES

41 Subgroup analysis reveals self-ratings of current knowledge levels about ways to save for retirement were higher among those who are currently in a KiwiSaver scheme, prepared for retirement and older. Table 18 : Subgroup analysis on current versus aspirational understanding of superannuation / ways to save for retirement Currently in a KiwiSaver scheme Preparation for retirement Attitude to KiwiSaver Knowledge of KiwiSaver Age Gender Index Mean score - Current level of knowledge of investments Mean score - Aspired knowledge about investments Mean score - Current level of knowledge of superannuation and retirement related issues Yes No Unprepared Prepared Positive Negative High Low Male Female (n=615) (n=378) (n=835) (n=151) (n=654) (n=239) (n=707) (n=296) (n=215) (n=372) (n=416) (n=418) (n=535) (n=304) (n=313) (n=199) (n=187) Actively against Skeptical reserved embracing Mean score - Aspired knowledge about superannuation and retirement related issues MERCER KIWISAVER SENTIMENT INDEX STUDY 39

42 Sources of advice / information Kiwis were asked who they would turn to for information about retirement savings schemes. It was noted the primary source of information is KiwiSaver providers, along with employers, websites and government resources such as Inland Revenue. Employers should not underestimate the role they play in building the success of KiwiSaver. But it s not simply a responsibility, it s an opportunity: to build employee engagement and demonstrate that the organisation takes a genuine interest in employees financial wellbeing. Employers therefore need to work closely with their KiwiSaver provider of choice to ensure they have the tools and resources available to meet employees needs. 40 SECURING RETIREMENT INCOMES

43 Figure 21 : Preferred source of information Your KiwiSaver provider n/a 49% 55% My employer or HR Manager Independent source such as Sorted Website Government source such as the Inland Revenue Financial adviser Family Friend n/a n/a 25% 23% 20% 23% 19% 18% 18% 17% 16% 17% 13% 37% 37% 40% 33% 48% Accountant 13% 8% 15% Media - newspapers / specialist magazine Other No-one Don t know / not sure 15% 9% 5% 6% 6% 4% 4% 2% 4% 6% 4% 7% Q. If you have questions about KiwiSaver, who (if anyone) would you approach for more information? MERCER KIWISAVER SENTIMENT INDEX STUDY 41

44 Anticipated behaviour one in five intends to join in the next 12 months. Reflecting current strong participation rates, intention to join a KiwiSaver scheme has declined since One in five (19%) of those not in a scheme now considered themselves likely to join KiwiSaver in the next 12 months, compared to 26% saying the same in However, a reasonable proportion (43%) remains resolute in their intention not to join KiwiSaver the majority of which hold a negative view of KiwiSaver, and tend to believe they are already prepared for retirement. Figure 22 : Likelihood to join a KiwiSaver scheme in next 12 months 42% 37% 43% 5% 9% 6% 9% 17% 13% 20% 16% 17% 10% 13% 14% 15% 8% 7% Very likely Somewhat likely Neither likely nor unlikely Somewhat unlikely Very unlikely Don t know / not sure (Base: Currently not in a KiwiSaver scheme, n=388) Q. How likely are you to join a KiwiSaver scheme in the next 12 months? Intention to join a KiwiSaver scheme was particularly high among those with a positive attitude towards the scheme, and those who considered themselves unprepared for retirement. Table 19 : Subgroup analysis on intention to join KiwiSaver in the next 12 months How likely are you to join a KiwiSaver scheme in the next 12 months? Anticipated comfort in retirement Comfortable Uncomfortable Knowledge of Preparation for retirement Attitude to KiwiSaver Age Gender KiwiSaver Unprepared Prepared Positive Negative High Low Male Female Base: Currently not in a scheme (n=142) (n=213) (n=333) (n=47) (n=173) (n=131) (n=223) (n=166) (n=74) (n=149) (n=165) (n=202) (n=187) (n=230) (n=71) (n=48) (n=39) Very likely 6% 7% 7% 0% 9% 2% 6% 7% 10% 3% 7% 6% 6% 3% 10% 12% 7% Somewhat likely 11% 14% 15% 0% 19% 7% 15% 11% 12% 12% 15% 13% 14% 11% 18% 19% 10% Neither likely nor unlikely 17% 17% 17% 16% 24% 10% 19% 15% 14% 15% 20% 19% 15% 17% 15% 15% 22% Somewhat unlikely 13% 16% 15% 11% 14% 19% 14% 14% 9% 18% 12% 11% 17% 16% 12% 14% 5% Very unlikely 51% 39% 39% 72% 30% 60% 43% 43% 48% 45% 38% 44% 41% 43% 42% 37% 48% Don t know / not sure 2% 7% 7% 2% 4% 1% 4% 11% 6% 8% 6% 7% 7% 8% 4% 4% 7% Actively against Skeptical Index reserved embracing 42 SECURING RETIREMENT INCOMES

45 Conclusion to Report The Mercer KiwiSaver Sentiment Index Study shows an overall positive trajectory for the nation s retirement savings scheme. Participation is growing, most people perceive the scheme to be beneficial and the majority are satisfied with their provider. There is still work to be done, however. One in five Kiwis has given little thought to retirement, and one in four have thought about it but failed to act. More than half want to increase their knowledge about it. This provides both opportunities and challenges: while there is plenty of scope for KiwiSaver providers, employers and the Government to fill those knowledge gaps, finding the most effective way to communicate this knowledge, and engage people in their retirement savings, will need to be an ongoing focus. The key, of course, is to make it a priority. Employers can also use KiwiSaver as one more tool to connect with employees and demonstrate an interest in their financial wellbeing. Mercer is working with employers to ensure they have the tools and resources to answer employees questions, as well as create engagement and interest in retirement savings. While retirement looms close for some people, and seems way beyond the horizon for others, the one thing all New Zealanders share is the desire to live comfortably in their later. Achieving this means making retirement saving a priority for individuals, their employers and the Government. We all have a role to play in securing the retirement incomes of New Zealanders, now and in the future.

46 Appendix: About the survey participants Gender % Location % Life stage % Male 47% Female 53% Auckland 32% Canterbury 14% Wellington 11% Waikato 8% Middle family: Couple or single parent with children Young (under 34) single person living alone or sharing accommodation in a house / flat 20% 13% Education % Up to Year 13 35% TAFE / trade qualification 23% Undergraduate university degree 26% Manawatu-Wanganui 7% Otago 7% Bay of Plenty 6% Hawke's Bay 3% Southland 3% Northland 2% Young couple (either married or living together) with no children Middle (35-54) single person living alone or sharing accommodation in a house / flat Young family: Couple or single parent with children 13% 11% 12% Postgraduate university degree 16% Taranaki 2% Marlborough 2% Middle couple (either married or living together) with no children 8% Age % % % % Nelson 2% Gisborne 1% Tasman 1% Industry % Mature couple (either married or living together) with no children / no children living at home Mature couple (either married or living together) with children living at home 11% 6% % % Health care and medical 11% Education 11% Mature (55+) single or widowed person 4% Government 9% Retail 9% Manufacturing 9% Information technology 8% Finance and insurance 4% Construction and engineering 4% Hospitality and recreation 4% Transport and storage 4% Tradesworker 4% Business, industry or professional associations 3% Communications 3% Agriculture 3% Business services 2% Community service 1% Printing and publishing 1% Other 10% Children enrollment % (Base: Have children) Yes - All children are enrolled in KiwiSaver Some but not all children are enrolled in KiwiSaver No - No children are enrolled in KiwiSaver Home ownership % Have a mortgage / paying off home (n=379) 34% 11% 53% Don't know / not sure 2% 41% Rent / pay board / rent free 41% Own home 17% Other 1% 44 SECURING RETIREMENT INCOMES

47 MERCER KIWISAVER SENTIMENT INDEX STUDY 45