Increased confidence fails to encourage retirement savings
May 2005
Retirement savings hasn’t gone away, and seems to be an ever present source of commentary, both here in New Zealand and abroad.
A recent trip to the UK gave me more than my usual amount of reading time, and I happened upon a Special Report in The Economist, entitled “The shift away from thrift”. According to this respected publication, “across the rich world, people are saving less”. They cite figures from the OECD which plot dramatic declines in the both the net national saving rates as a % of GDP, and as a % of disposable household income – the latter declining across countries as diverse as Italy, Japan, the USA and Australia.
New Zealand, unfortunately was not mentioned. So it was with some interest that I returned to examine the first results for 2005 from our SaverPulse survey, and also to find that the ASB Bank Investor Confidence index rose again to its highest level since recording started in 1998. The current peak, equivalent to that reached only once before in the 4th quarter of 2003, shows that there are now 3 optimists to every one pessimist in the investment market – the optimists believing (despite recent positive results) that their investment returns will increase in the next year.
Add to this is the fact that the proportion – albeit small – of people who are extremely confident they are making the right investment decisions has doubled since 1998.
So has this confidence in the investment market drawn more people in, encouraged more to start providing for their later years? I was no sooner back than I spotted a NZ Herald headline “Hands-off savings policy must go” – a commentary by Dr David Skilling of the NZ Institute claiming that “falling household wealth is a big problem that demands bold intervention.”
While I do recognise that there are other reasons to save (and investigate those in some detail in my research), I also know that the primary purpose of long term savings is ‘for retirement’. At Synovate, we’ve been tracking the level of participation in retirement savings amongst the general public for some coming up 8 years now, and the results have been remarkably stable over the past two years.
At just over half of the general adult population, the proportion of people saving for their retirement appears to be static, while there is some small fluctuation over time between those who say that they are retired, and those who are not retired but not saving for their retirement. One might hypothesize that this fluctuation is caused by previously retired people moving back into the workforce – given current low levels of unemployment – to supplement the meager superannuation they receive from the taxpayer.
Also unchanged is the certainty that the best investment returns are to be had from investment in residential rental property, this continuing despite increased interest rates which one would think would surely be recognised by the public as driving down rental return on investment. Another client of mine, Crockers Property Management, has recently highlighted that rental levels in the Auckland region have failed dramatically to keep pace with the rising costs of purchasing residential property. Yet amazingly, in March 2005, property sales were again up, property investors remained more confident than any other group that they were in the ‘winning’ investment sector, and residential rental property remained the investment which more people believe delivers the best return.
According to The Economist article… “rather than focusing on tax incentives, recent economic research suggests politicians out to look harder at what stops people saving. A slew of studies by behavioural economists suggest people are deterred from thrift by the decisionmaking involved”.
This is clearly supported by our research, which shows that, of those not saving for retirement, over two thirds find it difficult to decide where and how to save – interestingly just under half of the savers agree with them, but the difference remains significant.
Not surprising then that all indications point to compulsory workplace savings schemes being introduced – compulsory that is for the employer to offer, though not likely (yet) for the employee to join. Yet even so, leaving the decision to the individual is all too likely to mean that it is deferred, even in this time of incredibly high employment, and high levels of confidence in the investment markets.
Debra Hall
Debra Hall is Research Director of Synovate Ltd, and has been researching consumer views on investment and insurance products for over 12 years. The views expressed in this column are her personal opinions, based on personal experience and data from surveys owned by Synovate, or used with permission of the clients involved.