Original Article

Factors inuencing investor choice

of retirement funds
Received (in revised form): 24th March 2013

Allan Lee
is Senior Lecturer in Communication at AUT University, Auckland.

Yingzi Xu
is Senior Lecturer in Marketing at AUT University, Auckland.

Kenneth F. Hyde
is Associate Professor of Marketing at AUT University, Auckland.

ABSTRACT This article seeks to identify the key factors inuencing consumer choice
of retirement investment fund in a legislative environment with an auto-enrolment retirement regime. Age-specic focus group discussions are conducted. Multiple sources of
evidence are considered including transcripts of focus group discussions, participant
ranking of inuencing factors and data on actual fund choice. Thematic analysis is applied
to the qualitative data set. Five factors are identied as most important in consumer
choice of retirement investment fund: attitude to nancial risk, perceived time to retirement,
advice from family, friends and colleagues, information from providers and the media,
and knowledge of investing. Three lesser factors are also identied: involvement in
nancial planning, ethical concerns in choice of investment options and other assets
held by the consumer. Overriding all of these is the considerable impact of the default
investment scheme presented to consumers in the auto-enrolment regime. Choice of
retirement investment fund appears a low effort decision for most research participants;
by default, many consumers invest in conservative retirement funds. There is a role for
government regulators to guide consumers to age-appropriate default schemes that vary
in their growth/risk potential. Fund providers are encouraged to provide more complete
and understandable performance information and reporting on funds. Future research
should consider the impact of nancial literacy on consumer fund choice.
Journal of Financial Services Marketing (2013) 18, 137151. doi:10.1057/fsm.2013.8
Keywords: retirement investment; attitudes to nancial risk; nancial literacy; low effort
decision-making

INTRODUCTION
When New Zealand launched KiwiSaver in
2007, it joined a growing international trend
Correspondence: Allan Lee
AUT University, Private Bag 92006, Auckland City,
Auckland 1142, New Zealand

towards second-tier personal pension

schemes. KiwiSaver is a work-based
retirement savings scheme, also referred to as
a defined contribution scheme. It
supplements New Zealand Superannuation, a
first-tier universal benefit that all citizens are
entitled to when they reach retirement age,

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www.palgrave-journals.com/fsm/

Lee et al

currently 65 years. KiwiSavers introduction

was a response to concerns that New Zealand
Superannuation may not be sustainable given
the countrys expanding population of
pensioners. The early uptake of KiwiSaver
exceeded expectations, with 1.97 million
people joining by June 2012 (Inland Revenue
Department, 2012), thanks mainly to an autoenrolment provision and financial incentives
from the government and employers.
When they join KiwiSaver and sign up
with a provider (there are about 30 providers
including banks, insurance companies, trusts
and fund managers), new recruits receive an
initial $US850 kick-start contribution from
the government. Members then contribute to
their personal accounts a regular percentage
of their gross pay that is matched by
contributions from their employer up to a
maximum of 3 per cent. As well as choosing
their provider, scheme members can also
choose the investment fund or asset class into
which their savings will be invested (ranging
from low-risk conservative, to balanced, to
higher-risk growth funds). KiwiSaver
members get access to their accumulated
contributions and investment returns when
they reach retirement age.
New members declining to choose a
provider or a fund are automatically allocated
to conservative funds run by governmentappointed default providers. The architects of
KiwiSaver decided that default funds would
be conservative, 75-85 per cent invested in
cash and fixed income assets, minimizing
costs for both pension providers and investors
and reducing the risk of loss for members
declining to actively choose a fund.
Concerns have been raised, however, that
too many KiwiSavers are investing in
conservative funds that do not match their
age and risk profile (Ministry of Economic
Development, 2008; Gaynor, 2010). By June
2011, 57 per cent of total funds under
management in KiwiSaver were invested in
broadly conservative, including default, funds
(Morningstar, 2011). Conservative funds may
be ideal for older members of the scheme,

138

but asset class performance data (Goetzmann

and Ibbotson, 2006; Siegel, 2007) suggests a
conservative investment strategy may be
inappropriate for younger members of the
scheme. By June 2011, 32 per cent of KiwiSaver
members were aged between 18 and 34.
Implicit in giving KiwiSaver members the
responsibility of choosing an appropriate
investment fund is an assumption that their
financial acumen is up to the task. Several
studies suggest it is not (Colmar Brunton,
2009; OConnell, 2009). One study found
40 per cent of members did not even know
what kind of fund they have invested in
(Inland Revenue Department, 2010).
This study aims to identify the key factors
influencing KiwiSaver members when they
make or opt out of making the fund
choice decision when they join the scheme.
Previous studies have shown people investing
for their retirement are influenced by their
age, education and wealth (Baker and
Haslem, 1974; Foster, 1996; Devaney and
Su, 1997; Prenda and Lachman, 2001;
Goetzmann and Kumar, 2008; Petkoska and
Earl, 2009); by their peers, pension providers
and the design of the pension scheme,
including the default rules (Madrian and
Shea, 2001; Choi et al, 2002; Sunstein and
Thaler, 2003; Beshears et al, 2008; Iyengar
and Kamenica, 2010); and by their attitude
to risk (Joo and Grable, 2000; Rickwood
and White, 2009). A qualitative approach
was adopted in the belief that in-depth
discussion provided by focus group
interviews would tease out the factors
influencing fund choice. Focus groups were
supplemented by a fund selection exercise
and a brief questionnaire.
Pension providers and policy-makers will
benefit from better understanding the factors
motivating clients making decisions on which
asset classes suit their circumstances.
KiwiSaver members could be acting as
neoclassical economists and marketing
theorists might predict as rational,
well-informed decision-makers who choose
funds that maximize their long-term wealth

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Factors inuencing investor choice of retirement funds

(Morgenstern and Von Neumann, 1947;

Markowitz, 1952; Savage, 1954; Nicosia,
1966; Engel et al, 1968; Howard and Sheth,
1969). Or they could be responding in ways
that behavioural economics and finance
theorists would anticipate naive, short on
intellect and willpower, terrified of risk, and
prone to following their friends, the defaults
or the path of least resistance (Simon, 1955;
Kahneman and Tversky, 1979; Mowen,
1988; Foxall, 1993; Mullainathan and Thaler,
2000; Mitchell and Utkus, 2004; Benartzi
and Thaler, 2007).
This article commences with a review of
the literature on factors affecting consumer
choice of a retirement investment fund.
Three age-specific focus groups were
conducted to explore qualitatively the factors
influencing New Zealand consumer choices
of KiwiSaver investment fund scheme.
A model of factors influencing consumer
choices is presented that identifies five key
factors in financial decision-making, plus the
overriding importance of the default scheme
in the auto-enrolment regime. Implications
of these findings for fund providers and
government regulators are discussed.

LITERATURE REVIEW
A number of researchers have modelled the
retirement investment decision-making
process. These models consider individual
differences among consumers including
demographic factors such as age, as well as
issues of financial expertise, knowledge and
involvement in financial decision-making.
Environmental influences have also been
modelled, including risk factors, media
recommendations and the opinions of family
and friends. These models helped to inform
the broad design and data gathering for the
present study.

Retirement investment
decision-making
Harrison et als (2006) three-stage model of
investment decision-making suggests that
people are influenced by their attitudes

towards retirement during the pre-purchase

stage; they prefer advice from friends and
family over advice from experts at the
choice/selection stage; and at the postpurchase stage, they typically feel
ill-equipped to evaluate their choice of
pension scheme. Joo and Grable (2000)
modelled retirement investing as a function
of three factors: environmental influences that
include employment, household size and the
number of financial dependents; individual
differences in characteristics such as age,
gender, marital status, income and education
level; and psychological processes including
financial attitudes, retirement attitudes and
risk tolerance.
A pre-purchase decision model developed
by Rickwood and White (2009) identified
internal factors, external factors and risk factors.
Among the internal factors, they found
people had limited involvement in preparing
financially for their retirement, excepting
married males aged 40-55. They found that
for most, retirement was not a conversation
topic among friends and people rarely
actively sought information. The strongest
internal influence on savings was age, with
most saying they wanted more information
and more financial education provided in an
easily understood manner. Rickwood and
White found the major external factors
influencing retirement planning were family
influence, marketer influence and
competitive options, with family having the
biggest impact on participants preparing for
retirement. Advice from media commentators
could also be influential. Four risk factors
were found to be linked with retirement
decision-making functional, financial,
psychological and temporal. Rickwood and
White found these risk factors had a negative
impact on decision-making as people often
doubted the security of investing for their
retirement and worried about the likelihood
of changing rules and a lack of unbiased
advice. This negative perception of risk
might encourage such consumers to invest in
conservative funds, while other consumers

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Lee et al

see the positive association between risk and

growth in investment funds.

Demographics
Studies into demographic and socioeconomic
influences have identified age as an important
determinant of retirement financial planning
(Devaney and Su, 1997; Prenda and
Lachman, 2001; Petkoska and Earl, 2009).
Older investors, particularly those with
higher incomes and a tertiary education, tend
to hold the most diversified investment
portfolios (Baker and Haslem, 1974;
Goetzmann and Kumar, 2008). Foster (1996)
found that participation in 401(k) pension
plans in the United States increased with
employees income levels and was higher for
those working in professional roles. The level
of savings in 401(k) pension funds was found
by Yuh and DeVaney (1996) to be
influenced by educational attainment, income
level, home ownership and years in
employment. On gender differences, Glass
and Kilpatrick (1998) found that women
prepare less for retirement and have less
confidence with financial matters. Women
are more likely to invest in conservative
assets when allocating their pension portfolios
(Sunden and Surette, 1998; Bajtelsmit et al,
1999; Bernasek and Shwiff, 2001; Watson
and McNaughton, 2007).

Knowledge and expertise

Studies have also found that consumers
expertise and knowledge influence their
decision-making on financial services (Perry
and Morris, 2005). Hilgert et al (2003)
established a link between financial
knowledge and financially responsible
behaviour in saving and investing. Agnew
and Szykman (2005) found that highknowledge individuals were less likely to
choose a default asset allocation in a
long-term investment. When Grable and Joo
(1998) tested for determinants of financial
satisfaction, they found it was positively
correlated to income, financial knowledge,
risk tolerance and education. A later study

140

found that investing for retirement was

linked to individuals knowledge, financial
risk tolerance and future time perspective
( Jacobs-Lawson and Hershey, 2005).

Involvement
Clients involvement and their level of
uncertainty over decision-making have been
identified by other researchers as factors
influencing attitudes and behaviour towards
buying financial services (McKechnie, 1992;
Harrison, 1994). Beckett et al (2000)
combined involvement and uncertainty into
a consumer behaviour matrix which they
say explains financial services buying
behaviour. They identify four ideal types of
characters who range from low to high levels
of involvement with the service and from
low to high levels of confidence. Theoretical
work on involvement suggests that people
seek and process information where they
perceive a high relevance to their needs
(Brucks, 1985; Bruner and Pomazal, 1993).
While customer involvement varies across
different financial services, Aldlaigan and
Buttle (2001) suggest that bank clients look
for high levels of personal contact over
investment services.

Satiscing in decision-making
Benartzi and Thaler (2007) found most
people lack the cognitive ability and
willpower to optimize their lifetime finances
and instead opt for simple heuristics or rules
of thumb. Mullainathan and Thaler (2000)
identified heuristics like simple
diversification, avoiding extreme options and
settling for defaults as decision-making
strategies for long-term investing. Customers
trade off time against effort required when
comparing their options, and often resort to
short cuts (Benartzi and Thaler, 2002).
While traditional economic and marketing
theories hold that wide choice is good for
clients, there is evidence that people can get
overloaded with too many options (Iyengar
and Lepper, 2000). Studies into pension
investment show that scheme participants are

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Factors inuencing investor choice of retirement funds

overwhelmed by multiple choices and will

simplify decision-making, where possible by
choosing default options (Iyengar and
Kamenica, 2010). A study of participation
rates in US pension schemes (Sethi-Iyengar
et al, 2004) found that as the number of fund
options increased, membership of the scheme
fell. A Swedish personal pension scheme
offering 456 fund options was found to be
overly complex for scheme members
(Sunstein and Thaler, 2003).
Passive decision-making is common in
retirement savings planning, with employees
doing whatever requires the least effort and
choosing the path of least resistance (Choi
et al, 2002), or alternatively just doing
nothing, which Samuelson and Zeckhauser
(1988) label the status quo bias. In unfamiliar
territory, such as choosing between complex
investment options, people are attracted to
the default settings, often because they see
others choosing them (Sunstein and Thaler,
2003). Even though employees can ignore or
opt out of pension scheme defaults, studies
show that few actually do so (Beshears et al,
2008). For pension schemes, default settings
have been shown to increase participation
rates significantly (Madrian and Shea, 2001;
Choi et al, 2002; Beshears et al, 2008).
In summary, common factors believed to
influence financial decision-making for
retirement are: demographic factors such as
age, gender, income and education;
environmental factors such as risk, the
influence of family and friends, and the
media; and psychological factors such as
financial knowledge, involvement, attitudes
to retirement, future time perspective and
risk tolerance. Research suggests when faced
with complex information on retirement
investment options, many consumers make
simple investment decisions such as choosing
the default investment option. Each of these
issues was explored in the research.

METHODOLOGY
A qualitative approach was adopted for this
study because the researchers wanted to

explore the KiwiSaver fund choice issue

through the lived experiences of the
decision-makers themselves (Schwandt,
2001). How do KiwiSaver members
experience the fund choice decision and
what are their perceptions about the main
factors influencing that decision? Potential
influencing factors drawn from the literature
helped to guide the fieldwork. Focus group
interviews were used as they are considered
appropriate for probing motivating factors
(Bryman and Bell, 2007), and they allow
issues to be raised that are important to
participants. These issues could be discussed
and challenged by other KiwiSaver members
as they strived to collectively make sense of
a phenomenon and construct meanings
around it (Bryman and Bell, 2007, p. 512).
Because KiwiSaver members were likely to
find it challenging to articulate their fund
choice, it was decided that the more indirect
approach of the focus group would be more
productive. Participants who lacked
confidence in their financial knowledge
would feel more comfortable in a collective
setting that encourages disclosure. Focus
groups have been used in other studies into
pension fund choice decision-making
(Harrison et al, 2006; Rickwood and White,
2009).

Recruitment of groups
Participants were recruited through purposive
sampling (Patton, 2002) among KiwiSaver
scheme members. Email invitations were sent
to the researchers networks and recipients
were asked to on-send the invites to their
networks. Diversity was sought in terms of
both gender and age as there is evidence that
these factors influence retirement financial
planning decisions ( Joo and Grable, 2000;
Prenda and Lachman, 2001; Holm, 2009;
Petkoska and Earl, 2009; Rickwood and
White, 2009). The 17 participants recruited
were divided into three focus groups: 2035year olds, 36-54-year olds, and those aged
55 + . There is evidence that participants are
more likely to open up and discuss their

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Lee et al

experiences with people in their own age

bracket (Morgan, 1997).

Focus group meetings

The focus group meetings were audiorecorded and each lasted approximately
60 min. The meetings started with
participants answering three written questions
provided on cards. The first asked: If you
were choosing a KiwiSaver investment fund
tonight, which of these five options would
you opt for Conservative, Conservative/
Moderate, Balanced, Growth and Aggressive
(each option showed asset allocations to
shares, property and cash). Participants were
then asked to make selections from a list of
potential factors that could be influencing
their choice of fund (for example, risk
attitude, expert opinions, and advice from
partners or family). They could add other
factors beyond the list provided. The third
question asked them to rank their top three
influencing factors. This exercise triggered
widespread discussion within the groups as
participants in turn shared and explained
their selections. At the end of the meetings
participants completed a questionnaire that
gathered data on their actual KiwiSaver
provider and fund choice, their education,
income and whether they had children living
at home.

Coding procedure
The audio recordings were fully transcribed.
An iterative thematic analysis procedure was
used to identify and tease out common codes
and themes in the transcript (Gomm, 2004;
Bryman and Bell, 2007). The data coding
procedure was based on Ritchie and
Spencers (1994) five-step framework
analysis approach: familiarization; identifying
a thematic framework; indexing; charting;
mapping and interpretation. Focus group
transcripts were read multiple times to raise
familiarity with the text and to identify the
broad tone of ideas discussed by the
participants (Creswell, 2003). An open
coding process was followed involving

142

breaking down, examining, comparing,

conceptualizing and categorizing data
(Strauss and Corbin, 1990).
Coding began by adding descriptive notes
to the margins of the focus group transcripts,
summarizing concepts, opinions and feelings
being expressed. The descriptive notes were
developed into code descriptors. Each code
descriptor was refined until it captured all
instances of transcript comments identified by
the code. A second researcher checked the
reliability of the coding process. A total of
21 descriptive codes emerged from the data
analysis and these were grouped into eight
themes (see Figure 1). The following
provides one example of a code, and an
excerpt of transcript that illustrates the code:

Advice from family, friends,

colleagues who are highly trusted
(code < C-A>)
Descriptor : Participants say they can trust or
rely on the word-of-mouth advice they get
from those who are close to them their
family, friends and work colleagues.
Participant comment:
You got to get advice from the people
you trust. What they recommend for you
is not necessarily what you may decide
may be the best scheme for you. But
you trust that they will be able to explain
things for you, and interpret things in a
way that you can understand. M (2035)

Measuring frequency and strength

of opinion
Qualitative sampling rarely generates
statistically representative data; therefore,
expressing results in terms of frequencies can
be misleading (Pope et al, 2000).
Nevertheless, qualitative researchers
sometimes do quantify aspects of their data
to help express the phenomenon under study
(Miles and Huberman, 1984; Bryman and
Bell, 2007). As Bryman and Bell (2007)
point out, qualitative researchers at times
engage in quasi-quantification through the

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Factors inuencing investor choice of retirement funds

Figure 1:
Codes and themes emerging from focus group meetings.
Note. The prevalence of codes and themes is ordered top to bottom for themes, left to right for codes. Numbers in
the corner of each box reect the prevalence of each code.

use of terms like many or some; therefore

by quantifying the number of responses
under a category a researcher is injecting
greater precision into such estimates of
frequency (2007, p. 635). The number of

comments appearing under each code was

logged, based on counting the number of
individual instances of the comment being
made by participants (Rabiee, 2004;
Braun and Clarke, 2006). The approach was

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Lee et al

Figure 2:

Advice from
family,
friends,
colleagues

Information
from
providers,
media

Knowledge
of investing

Perceived
time to
retirement

Fund choice
decision

Involvement

Attitude to
financial
risk

Default
choice

Factors inuencing KiwiSaver fund choice.

taken a step further by applying weightings

to participants comments, reflecting the
reality that some comments are more
evidence-based or profound than others
(Rabiee, 2004; Breen, 2006).
Two criteria were used to assess the
strength of opinion in a transcript comment.
The first was the specificity of the
comment how detailed and extensive
is the comment? The second criterion
was the conviction/intensity of the
comment to what extent does the
speaker communicate a depth of feeling
and strongly held opinion on the issue?
A three-stage weighting scale was developed
against which comments were measured:
Low (scoring 1), Medium (scoring 2) and
High (scoring 3).

Triangulation of data sources

Examining the consistency of information
from different data sources has been
described as triangulation of sources (Patton,
2002). Following the fieldwork the
researchers had three data sources that
enabled a degree of triangulation: the
transcripts of the focus group interviews; the
results of the question cards completed at the
start of each meeting; and information from

144

Ethical
concerns

the questionnaire completed by participants

that included details of their income,
education, family and their actual KiwiSaver
fund choice.

FINDINGS
Analysis of the focus group transcripts
identified 21 codes representing eight themes
(see Figure 1). Further analysis of all the
data, including the focus groups, the question
cards and the brief questionnaires, resulted in
a final picture of the influences on the
KiwiSaver fund choice decision (see Figure 2).
Five of the nine themes in Figure 2 appear
to have the strongest influence attitude to
financial risk; perceived time until retirement;
advice from family, friends and colleagues;
information from providers and the news
media; and knowledge of investing. Three
influences appear to be of lesser importance
involvement in financial products, ethical
concerns and participants other assets.
Overriding all these factors is the influence
of the default investment scheme offered by
pension providers (see Figure 2).

Attitude to risk
Attitude to financial risk was uppermost in
the minds of the focus group participants, in

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Factors inuencing investor choice of retirement funds

relation to both their pension fund decision

and their financial planning in general. It
received the highest number of mentions in
the focus group discussions and came out top
in the influencing factor ranking exercise.
Participants were evenly split on the topic
with half having a negative attitude and half
a positive attitude to financial risk. Negative
attitudes to financial risk were voiced in all
three groups. Younger participants who were
risk averse said it was because they were not
well enough informed, not sufficiently
experienced or just not having a head for
finance. For those in the 36-54 and 55 +
groups and uncomfortable with risk it was
the fear of potential losses that put them off.
I dont have much time to go so I dont
want to lose anything. I want to be on
the safe side. Its not necessarily going to
make me a lot of money, I know, but
avoids the possibility of losing. (55 + )
I think safety is the most important thing.
I dont want to lose my money. (36-54)
Most of those in the 55 + age bracket who
were comfortable with financial risk
understood the received wisdom about
reducing risk exposure with age. Participants
who welcomed risk saw it as a route to faster
funds growth.
Im a bit surprised so many people are
choosing conservative and not risking
more because they have got a lot of
years to get there. At a younger age
youre able to risk a lot more and
recover. (55 + )
A growth fund may have its ups and
downs but overall it grows at a faster rate
for say 30 years, then you are going to
be in a better position. From my point of
view the risk is worth taking. (2035)

Perceived time to retirement

Participants talked about financial planning
for retirement in terms of their perception of
their current life stage how close or how
distant their retirement seemed to them. Not

surprisingly, the 2035-year olds saw

retirement as well over the horizon.
Ive got 40 years to retirement which
is a long time and I back myself to end
up better off then following a growth
approach than taking a conservative
outlook. (2035)
Only one participant from the 36-54 group
and one in the 55 + group believed they still
had a long time to save and invest for
retirement, and both had chosen a growth
fund. Several participants articulated the
received wisdom about fund choice and time
to retirement, one saying the younger you
were the more time you had for a volatile
investment to go up and down but grow
more strongly. All the comments under the
code for perceive a short time to save/invest
for retirement came from the two older
focus groups.

Word-of-mouth advice
Advice from family, friends and colleagues
was a strong influencing factor for those in
the 2035 age group. Participants talked
about listening to the advice of family
members, or learning from their friends, or
just talking things over with friends and
work colleagues who were in a similar
situation to them. The two younger focus
groups talked about trusting or relying on
the judgement of family members who had
experience with financial matters. In all cases
participants found the advice helped in their
decision process.
You got to get advice from the people
you trust. What they recommend for you
is not necessarily what you may decide
may be the best scheme for you. But
you trust that they will be able to explain
things for you, and interpret things in a
way that you can understand. (2035)
I turn to people who know more than
me and ask them what I should do.
I have a sense of personal hopelessness in
this area, its not one of my skills. (36-54)

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Information sources
Many participants felt that their choice of
investment fund was influenced by
information and recommendations coming
from their employer, the media, the
Government and providers. Many had a
negative view of pension providers ability to
supply them with timely and useful
information. Some felt poorly informed
when they joined the scheme, but the most
common criticism focussed on the reporting
of fund performance by providers.
Participants said their provider had not
clarified where their funds were invested; or
the information they got was confusing or
lacked detail; or the communications were
infrequent or required too much effort to
interpret.
The information isnt good enough.
When I get the information it doesnt
mean a whole lot to me. Because this is a
retail scheme things need to be simplified
and explained to people. (2035)
Views expressed on the role of the media
were strongly positive with most regarding
the media as an important or helpful source
of information. Two participants felt
disappointed by the information their
employer was able to provide, one saying he
was just referred to the IRD website, and
another saying the material from her
employer was insufficient and too general.

Knowledge of investing
Previous experience with investing or the
lack of previous experience has a bearing
on the KiwiSaver fund choice. Participants in
the 55 + age bracket were the most talkative
on the subject. Some younger participants
who had experience of investing felt that the
volatility of the financial markets in recent
years would make some scheme members
wary of investing in shares. Younger
participants talked about their poor
understanding of the financial markets, about
not having a head for finance, and being
just not informed enough to take risks.

146

I have a poor understanding of the

financial markets and how they work,
but Im aware of the volatility and that
puts me off. I havent received much
professional advice and I dont have
much past experience with investing.
(2035)

Involvement
Some participants were not engaged with the
fund choice decision, saying they were
indifferent about where their savings were
invested, or they were prepared to accept
their employers default scheme and fund.
A younger (2035) participant, who had
joined for the free money in the
Governments $US850 kick-start, said he
would not be concerned about the fund
until he started to see losses. Two other
participants who had gone with their
employers default had either not got around
to choosing a fund or were just not
interested in doing the research. Several
comments captured the idea that the most
important or obvious choice was to be in
the scheme because it was such a good
deal, it was a no brainer or it was easy to
switch funds later but the main thing was to
be in the scheme. These sentiments were all
expressed by older (55 + ) participants.

Ethical concerns
Several participants in the 36-54 focus group
said their ethical concerns would influence
their choice of KiwiSaver fund. One said the
ethical side of investing was important and
people had to take it more into account
these days. Another said she had actively
looked for a provider offering an ethical fund
but none had met her standards:
I didnt want to be investing in tobacco
or armaments companies. But Ive found
it very difficult to find a provider that
excluded companies that I didnt want to
invest in. Im with Gareth Morgan and I
see that Ive got shares in Pepsi Cola and
McDonalds which I would rather not.

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Factors inuencing investor choice of retirement funds

But there isnt a provider that excludes

takeaway and soft drink companies. If
there was I would choose that provider.
(36-54)
Socially responsible investment has become a
core issue for many contemporary investors.
Nilsson et al (2010) show how socially
responsible investors search for information
on the social, ethical and environmental
behaviour of companies before making an
investment decision.

Employer default settings

The strong influence of KiwiSavers default
settings is evident in the fact that nine of the
17 participants revealed in the questionnaire
that they had opted to go with their
employers default KiwiSaver provider. These
nine participants were distributed across the
three focus groups. As one 55 + participant
put it: I just placed my confidence in my
employer that someone had made a
considered decision to go with Tower.
Im not into reading balance sheets.
The default choice is not a filter to other
choice making; it is not something that is
always considered before other factors such
as advice from friends, family and colleagues,
or attitude to financial risk are considered.
In fact, it is equally likely that, once the
consumer has considered a number of other
factors influencing fund choice, passive
decision-making sweeps the consumer
towards the path of least resistance, that is,
towards the default choice. The default
choice is also a prime option for those
consumers who lack involvement or
knowledge of investing.

DISCUSSION AND
IMPLICATIONS
Two important factors were evident about
KiwiSaver prior to this study: first, thanks to
the auto-enrolment regime and the
incentives on offer, the uptake of the scheme
had greatly exceeded expectations, with 1.97
million joining by June 2012 (Inland

Revenue Department, 2012); and second,

the prescribed asset allocation built into the
design of the default funds was inflating the
proportion of KiwiSavers savings invested in
conservative funds 57 per cent of the funds
invested at the end of June 2011 were in
conservative (including default) or
conservative/moderate funds (Morningstar,
2011). Of course not all those in
conservative funds had joined a default
scheme; a significant proportion had actively
chosen a low-risk, conservative fund.
As Figure 2 illustrates, aside from the
strong influence of the default scheme
settings in KiwiSaver, there are several main
factors influencing the fund choice decision.
It should be noted that the model does not
specify a set sequence in which these factors
are considered by the consumer. Indeed, it is
likely that the sequence in which the factors
operate varies greatly from one consumer to
another. Matching the findings of earlier
studies (Grable and Joo, 1998; Joo and
Grable, 2000; Rickwood and White, 2009),
the single most prevalent factor is Attitude
to financial risk, but interestingly participants
were evenly split on whether financial risk
was good or bad. Participants were either
attracted to the promise of higher returns
associated with growth funds, or were
accepting of slower, steadier returns
associated with conservative funds. The next
most important influencing factor appears to
be age and perceived time to reaching
retirement. Other researchers have also found
a link between life stage and retirement
planning (Devaney and Su, 1997; Prenda and
Lachman, 2001; Petkoska and Earl, 2009).
While younger participants behaved as
economic rationalists by thinking their long
horizon to retirement meant they should opt
for growth funds, some older participants felt
they too should be in growth funds, which is
more aligned to the portrayal of investment
decision-makers provided by behavioural
economics (Kahneman and Tversky, 1979;
Foxall, 1993; Mullainathan and Thaler, 2000;
Mitchell and Utkus, 2004; Benartzi and

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147

Lee et al

Thaler, 2007). Matching the findings of

Rickwood and Whites study (2009), advice
from family, friends and colleagues turned
out to be another important influencing
factor an observation that again finds more
support in behavioural economics than
neoclassical economics or classical marketing
theory (Markowitz, 1952; Savage, 1954;
Nicosia, 1966; Engel et al, 1968). This
research confirmed that few people joining
KiwiSaver get professional financial advice,
a point the providers have been arguing.
Harrison et al (2006) also found a reluctance
to consult financial professionals.
While participants trust the media as a
source of information on KiwiSaver, some
were dissatisfied with the quality of
information and fund performance reporting
supplied by providers. While other
researchers have found a link between
financial knowledge and retirement investing
(Hilgert et al, 2003; Agnew and Szykman,
2005; Perry and Morris, 2005), this study
found previous knowledge of investing was
a significant but not a major influencing
factor, mainly because most participants had
little experience in the financial markets. Less
significant still was support for the marketing
concept of involvement (McKechnie, 1992;
Harrison, 1994; Beckett et al, 2000). Few
participants felt really engaged in the idea of
choosing a retirement fund. In an aside,
participants were asked which they had spent
more time on: choosing their KiwiSaver
fund or choosing their current cell phone.
Nine of the 17 participants said they put
more time into choosing their cell phone,
which again would have the behaviouralists
nodding.
The theoretical contribution of this article
is that it elucidates the likely factors that
influence consumer decision-making for
retirement investments, most particularly in
an auto-enrolment regime. The article
suggests that a large proportion of consumers
in such an environment will opt for the
default provider scheme, a result of passive
decision-making or mental inertia on the

148

part of the consumer (Samuelson and

Zeckhauser, 1988; Choi et al, 2002; Beshears
et al, 2008).

Implications
When these findings are added to the limited
research conducted on consumer choice of
retirement funds in an auto-enrolment
regime, a number of issues emerge about the
design of the KiwiSaver auto-enrolment
regime and the way members are using the
scheme.
First, this study underlines concerns about
the high proportion of young KiwiSavers
stuck in conservative funds not matching
their age or risk profile. KiwiSaver providers
have also criticized the conservative bias in
the scheme (Ministry of Economic
Development, 2008; Inland Revenue
Department, 2010). The government will be
under some pressure to change the default
provider rules and conditions when they are
reviewed in 2014. The government could
require providers to move from a single to
multiple default funds based on a life stage
investment approach (Rajkumar and
Dorfman, 2010). Where new recruits decline
to make an active choice of KiwiSaver fund,
they would be drafted into an ageappropriate default fund with an appropriate
asset mix to match their risk profile.
Second, another potential reform option
would be for the government to require
default providers to offer a comprehensive
education and advice service to their
KiwiSaver clients, perhaps in partnership
with employers. While the cost of such a
programme could be shared with employers
and KiwiSaver members, the default
providers would shoulder some of the
responsibility for their clients making wise
decisions on their investment strategy.
Third, and still on education, coordination
between the 10 government agencies that
have an interest in financial literacy could be
improved, as the Capital Market
Development Taskforce report (Ministry of
Economic Development, 2009)

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Factors inuencing investor choice of retirement funds

recommended. Surveys by Colmar Brunton

(2009) and a study on New Zealands
financial education (OConnell, 2009) show
more needs to be done if New Zealanders
are to be responsible for managing their own
portfolios.
Fourth, some participants in this study
criticized the quality of information and
performance data coming from KiwiSaver
providers. The CMDT report (Ministry of
Economic Development, 2009) suggests that
providers be directed to report their fund
performance information to investors on a
regular basis and that their investment
statements be written in plain English. It also
recommends that performance data from all
providers should be provided on a centrally
run and unbiased website.

Limitations and future research

The general limitations of using focus groups
apply to this study. While the age groups
and gender split among participants was a
reasonable reflection of New Zealands
working population, the fact that participants
all had a university education may limit the
scope for generalizing the findings. Yet, it
might be the case that university-educated
investors might be more informed on
financial investment; thus the research
findings here present a best case scenario
regarding financial literacy rather than a
worst case scenario. Future research could
employ a large sample study to investigate if
level of education influences diversity of
investment choices through a simple
mechanism of wealth: that more wealthy
consumers being able to invest greater sums
and afford professional financial advice on
the allocation of those funds. The findings
that emerged from the study are consistent
with past research (Simon, 1955; Kahneman
and Tversky, 1979; Mowen, 1988; Foxall,
1993; Devaney and Su, 1997; Grable and
Joo, 1998; Joo and Grable, 2000;
Mullainathan and Thaler, 2000; Prenda and
Lachman, 2001; Mitchell and Utkus, 2004;
Harrison et al, 2006; Benartzi and Thaler,

2007; Petkoska and Earl, 2009; Rickwood

and White, 2009).
The influencing factors on fund choice
found in this study could be tested using
several alternative methods in the future: in a
further round of focus groups that involve
more diverse participants; in a series of oneto-one interviews with KiwiSaver members
exploring their motivations in greater depth;
or in a wider quantitative survey using a
deductive approach to test the impact of
influencing factors on fund choices (Hyde,
2000). Financial literacy levels are clearly a
major issue; further research is required into
how well consumers understand their
pension schemes (Toder and Khitatrakun,
2006). Among other issues ripe for study are
the impact of ethnicity, gender, education
levels and income levels on the fund choice
decision; the determinants of risk attitude
towards investment decision-making; and the
communication styles used by pension
scheme providers, in terms of presenting
their fund options and reporting their
performance. Research on these themes will
give pension fund providers and policymakers insights into improving pension
schemes for the benefit of their clients.

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