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Saving for Retirement: New Evidence for New Zealand




There is an on-going debate about the level of savings in New Zealand. A fundamental question pervades the debate: namely, are we saving enough? This question arises at two levels: for the economy as a whole and for individual households. At the macroeconomic level, the concern is whether our aggregate level of saving as a nation is "adequate". At the micro level, the same question arises in relation to the saving for retirement: are New Zealanders adequately preparing for retirement? This paper addresses the second of these questions. It develops a model of retirement wealth accumulation based on the findings from the Household Savings Survey. The evidence we present, tentative though it is, does suggest that there may not be widespread undersaving for retirement. The results are consistent with overseas findings. We have chosen conservative assumptions: excluding equity in the primary residence from estimates of retirement wealth, providing for full survivor benefits and assuming that consumption spending would be maintained at pre-retirement levels throughout retirement rather than the typical pattern of falling consumption spending as people age. It must be stressed that there is limited information about the rate at which individuals are actually saving, making it difficult to establish a solid benchmark against which to measure adequacy. We have used the Household Economic Survey as a basis for estimating actual saving rates for different age groups. The estimates are affected by definitions of consumption, in particular how the expenditure on durables is treated. We conduct sensitivity tests where durables are both included and excluded as an item of current consumption. Typically we find that the actual saving rates do in fact exceed the rates needed for maintaining living standards in retirement. This reinforces our tentative conclusion that there is no apparent gross under-saving for retirement especially in the older age cohorts. The results apply to broad groups within which there will be a distribution of people some of whom would likely not be saving at a rate to maintain their real standard of living in retirement. The results in no way imply that every individual is saving “adequately”. While we present results for younger age cohorts, the fact they still have many years to retirement implies that estimates made today inevitably carry much wider margins of error. More unequivocal results must await better data and methodologies; improved measures of household saving levels, and the application of micro-simulation models which are more suited to capturing uncertainty about health status, employment, incomes and life expectancies will improve our understanding of household saving behaviour. New Zealand superannuation (NZS) provides the floor under the income for the lowest 40 percent of the income distribution, and for many in this group additional saving for retirement would not be a preferred strategy, assuming they were to be aiming to smooth their consumption over the life cycle. In other words our finding that there is no strong evidence of widespread under-saving is not inconsistent with a significant share of individuals not saving for retirement. This follows from the critical role played by NZS in providing those on low incomes with a standard of living in retirement which matched or exceeds that which their pre-retirement incomes can support. For these people the issue is the level of income rather than their level of saving.

Suggested Citation

  • Grant Scobie & John Gibson & Trinh Le, 2004. "Saving for Retirement: New Evidence for New Zealand," Treasury Working Paper Series 04/12, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:04/12

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    References listed on IDEAS

    1. B. Douglas Bernheim, 2000. "How Much Should Americans Be Saving for Retirement?," American Economic Review, American Economic Association, vol. 90(2), pages 288-292, May.
    2. Ross Guest & John Bryant & Grant Scobie, 2003. "Population Ageing In New Zealand: Implications for Living Standards and the Optimal Rate of Saving," Treasury Working Paper Series 03/10, New Zealand Treasury.
    3. Orazio P. Attanasio & Agar Brugiavini, 2003. "Social Security and Households' Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 1075-1119.
    4. Steven F. Venti & David A. Wise, 2001. "Choice, Chance, and Wealth Dispersion at Retirement," NBER Chapters,in: Aging Issues in the United States and Japan, pages 25-64 National Bureau of Economic Research, Inc.
    5. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2006. "Are Americans Saving "Optimally" for Retirement?," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 607-643, August.
    6. Orazio P. Attanasio & Susann Rohwedder, 2003. "Pension Wealth and Household Saving: Evidence from Pension Reforms in the United Kingdom," American Economic Review, American Economic Association, vol. 93(5), pages 1499-1521, December.
    7. John Gibson & Grant Scobie, 2001. "A cohort analysis of household income, consumption and saving," New Zealand Economic Papers, Taylor & Francis Journals, vol. 35(2), pages 196-216.
    8. Clive Thorp & Bun Ung, 2001. "Recent trends in household financial assets and liabilities," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 64, June.
    9. Eric M. Engen & William G. Gale & Cori E. Uccello, 2004. "Lifetime Earnings, Social Security Benefits, and the Adequacy of Retirement Wealth Accumulation," Working Papers, Center for Retirement Research at Boston College wp2004-10, Center for Retirement Research, revised Apr 2004.
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    Cited by:

    1. Creedy, John & Gemmell, Norman & Scobie, Grant, 2015. "Pensions, savings and housing: A life-cycle framework with policy simulations," Economic Modelling, Elsevier, vol. 46(C), pages 346-357.
    2. Grant M Scobie & Trinh Le, 2004. "The Impact of Workplace and Personal Superannuation Schemes on Net Worth: Evidence from the Household Savings Survey," Treasury Working Paper Series 04/08, New Zealand Treasury.
    3. Mark van Zijll de Jong & Grant M. Scobie, 2006. "Housing: An Analysis of Ownership and Investment Based on the Household Savings Survey," Treasury Working Paper Series 06/07, New Zealand Treasury.
    4. Janice Burns & Maire Dwyer, 2007. "Households'attitudes to savings, investment and wealth," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, December.
    5. World Bank, 2014. "Poland : Saving for Growth and Prosperous Aging," World Bank Other Operational Studies 20441, The World Bank.
    6. James Obben & Monique Waayer, 2011. "New Zealand's old-age pension scheme and household saving," International Journal of Social Economics, Emerald Group Publishing, vol. 38(9), pages 767-788, August.

    More about this item


    Savings; household net wealth; retirement; life cycle; New Zealand;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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