KiwiSaver and Retirement Adequacy

Investors face a long and uncertain journey to retirement and beyond, particularly wheninvesting in new defined contribution schemes such as New Zealand’s KiwiSaver. This paperseeks to provide positive insights into the design of KiwiSaver by assessing the recentlyannounced move from 4 to 6% minimum contribution rates using stochastic simulation. Weconsider retirement adequacy from two perspectives: (i) multiples of gross final earningsachieved during the accumulation phase; and (ii) replacement rates of salaries during thedecumulation phase. The findings reveal that an increase in the contribution rate from 4 to6% dramatically increases the probability of investors reaching a retirement target of eight (8)times final earnings, from 6% to 40%. However, despite the shift in lifetime contributions inthe right direction, the simulation analysis suggests that, in the majority of scenarios,KiwiSaver investors will not achieve an adequate retirement target.