The Impact of Workplace and Personal Superannuation Schemes on Net Worth: Evidence from the Household Savings Survey (WP 04/08)

Abstract

The central question addressed in this paper is: does having a workplace or personal superannuation scheme result in a higher level of accumulation for retirement? The paper presents a range of information about the participation and level of holdings in workplace and personal superannuation schemes based on data from the Household Saving Survey (HSS). While the proportion of people holding a scheme is small (around 10%), the value of a scheme for those enrolled represents about one third their total net worth. There is evidence that being enrolled in a workplace scheme is associated with higher levels of total net worth, yet this is not true of personal schemes, once several personal characteristics have been controlled for. Nevertheless, it is evident that those in either workplace schemes or personal have not fully substituted this form of saving for other vehicles. In fact in all cases there appears to be complementarity, whereby higher holdings in a scheme are associated with higher holdings in other forms of savings. Typically, an additional dollar invested in a workplace scheme is associated with higher total net worth of between one and two dollars, while for personal schemes the figure typically exceeds two dollars. Two possible explanations for this arise. The first is that by enrolling in a scheme an individual acquires heightened awareness of the importance of retirement saving and saves additional amounts in other vehicles. An alternative hypothesis is that there may be some self-selection bias; those who have enrolled might be more inclined to save than the population as a whole. There is no direct way to use the data to discriminate between these two possibilities. However holding constant a wide range of other factors (including age, income, ethnicity, residence, etc) it is reasonable to suppose that the more likely sources of selection bias may have been controlled for. If this is the case then the finding that more holdings of workplace superannuation are associated with greater total retirement wealth may well have arisen from an “awareness” or “recognition” effect of belonging to a scheme. In this event, policies which foster enrolment might lead to greater retirement accumulation by those in a scheme.

Acknowledgements

Valuable guidance and suggestions were received on an earlier draft from Michael Littlewood, Geoff Lewis, Bob Buckle, David Feslier, John Creedy, Roger Hurnard, Brian McCulloch, John Bryant, Brock Jera and participants in seminars at the Treasury, the Office of the Retirement commissioner, the Investment and Savings Industry and the Association of Superannuation Funds of New Zealand. The authors are grateful to Vance Arkinstall (ISI) and Bruce Kerr (ASFONZ) for arranging for presentations of an earlier draft. Dean Hyslop and John Gibson provided valuable guidance on the econometric testing. Work by the Treasury on analysing the Household Savings Survey has been undertaken with the support of the Office of the Retirement Commissioner, and the authors are indebted to David Feslier for his interest and support. John Gibson played a major role in the research project from which this paper is drawn.

The authors are grateful to Statistics New Zealand for their collaboration in providing access to the data, and in particular to Tanya Randall, Jason O’Sullivan and Peter O’Brien. Access to the data used in this study was provided by Statistics New Zealand in a secure environment designed to give effect to the confidentiality provisions of the Statistics Act, 1975. The results in this study and any errors contained therein are those of the authors, not Statistics New Zealand.

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury. The Treasury takes no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but to inform and stimulate wider debate.