3  The effect of belonging to a superannuation scheme on total net worth

This section presents the results of a series of statistical tests to assess whether belonging to a scheme is associated with higher total net worth.

What effect does being enrolled in a scheme have on an individual’s total net worth? Is it higher for those with a super scheme, holding constant other characteristics of the individuals? This test must compare those at the same income, age, gender, ethnicity, level of education, geographic location, partnering status, migrant status, income, and main source of income.

There are two possible reasons why we might observe those having a super scheme holding higher total net worth. In the first place it might be that as a result of belonging to a scheme, the person acquires a heightened awareness of the need for saving and increases his or her holdings in other savings vehicles; ie belonging to a scheme “causes” higher total net worth. Alternatively it maybe that we observe those with super schemes having higher net worth because they are “different” in some respect, over and above any observed characteristics for which we can account (age, ethnicity, education, income, main source of income, etc). In other words, they have some inherent trait which leads them to have greater accumulations of retirement wealth in various vehicles. This is in effect a problem of omitted variables. Had we been able to measure and account for all personal traits that affected savings decisions, then arguably we might not observe any remaining differences in wealth accumulation beyond those arising by random chance.

To conduct this test we fitted a regression equation with total net worth as the dependent variable, and a dichotomous variable for belonging to a scheme or not as an independent variable. We included a set of conditioning variables for whose effect we wish to control. Formally:

where:

NW_i = Total net worth of the i-th individual

D_i = 1 if the person or couple has a superannuation scheme (workplace or personal);

0 otherwise

Z_ij = a set of independent variable for personal characteristics (eg age, ethnicity, education, region, income, main source of income etc);[4]

ε _i = a random error term.

The results for individuals are shown in Table 1. Only the coefficients for the presence of a scheme are reported. The coefficients are an estimate of the additional net worth associated with belonging to a scheme. In the case of workplace pension, individuals having a scheme have $69,000 more of total net worth than those who are not enrolled. The comparison is for people of a comparable age, education, ethnicity, income, etc. We also control for gender and partnering status but neither variable is significant.[5] These results can be interpreted as follows: there is a 66% chance that the true (but unknown) effect in the population lies between $51,000 and $87,000.

Note: The coefficients are from regressions of net worth on a constant and a set of explanatory variables, based on a sample of 8356 individuals. In regression 3, we included two separate dummy variables for the type of scheme. The t-statistics are based on the test of the hypothesis that the coefficient is different from zero. ***Significant at the 1% level.

A net worth increase of $10,000 in favour of those enrolled is also found for personal schemes, but it is statistically insignificant. It appears that the effect of personal pension scheme membership and that of workplace scheme membership reinforce each other; both have positive effects. Furthermore, when we include the two membership dummies in one regression (see regression 3, Table 1), the coefficients and the degree of statistical significance actually increase.

A similar series of tests were made for couples to estimate the effect of belonging to a superannuation scheme. The results are summarised in Table 2. In the first place we considered the case where either partner was in a scheme. These results are given in the lines denoted 1 and 3 for workplace and personal schemes respectively. The key finding is that if either partner has a workplace scheme, then the total net worth of the couple is almost $90,000 more than for couples in which neither partner has a workplace scheme. This result is statistically significant. In contrast there is no evidence that when either partner belongs to a personal scheme total net worth is increased relative to similar couples in which neither partner has a personal scheme. In fact here the difference is negative; ie, when at least one partner belongs to a personal scheme, the couple’s net worth is lower than when neither has a personal scheme. However the estimated effect is not significantly different from zero, implying that there is no evidence of an effect on total net worth among couples of belonging to a personal scheme.

Note: The coefficients are from regressions of net worth on a constant and a set of explanatory variables, based on a sample of 2982 couples. The t-statistics are based on the test of the hypothesis that the coefficient is different from zero. The regression numbers are included to indicate where more than one of the explanatory variables was included in the same regression model. In Regressions 1 and 3, only one dummy variable was included, while in Regressions 2 and 4 two dummy variables are included. *Significant at the 10% level. **Significant at the 5% level.

These models were then rerun this time including separate variables to capture whether the respondent of the partner was enrolled in a scheme. The results presented in Table 2 in the lines denoted 2 and 4. In each case there is a separate coefficient estimated for the respondent and the partner. In the case of workplace schemes, couples in which the partner (who could be male or female) belongs to a scheme appear to have much higher total net worth. The difference is almost $140,000, and this estimate is reasonably significant, though the estimates have a wide confidence interval. In this case there is a 66% chance that the true difference lies in the range of $60,000 to $215,000. These wide limits reflect the fact that there is considerable variability in the underlying data. By contrast, in the case of personal schemes a similarly significant impact is found for scheme participation by the partner, yet this effect has a negative sign.

This section has considered whether or not membership in a scheme is associated with higher total net worth. While not overwhelming, the findings are that especially for workplace superannuation, both couples and individuals in a scheme have higher total net worth than comparable economic units who are not members of a scheme. The question then arises: do those who enrol in a scheme have higher total net worth because they also accumulate more in other forms of saving? We turn to this question in the following section.