2010

Motivated by a critique of the literature and an examination of the institutional setting, this thesis sheds light on the impact of defined contribution pension plan design on retirement adequacy using the New Zealand system as a case study. In order to enjoy standards of living in retirement similar to pre-retirement, a holistic approach to retirement including the accumulation and decumulation phases must be taken. The largest impact on retirement adequacy, lowering sustainable withdrawal rates and increasing the risk of not living well in retirement, is the level of accumulated wealth at retirement. While contribution rates make a significant difference to the achievement of retirement targets, with skewed income distributions, asset allocation is by far and away the most important driver of retirement wealth. The critical nature of the asset allocation message in the accumulation phase may not be well understood since large numbers of investors remain in default and conservative investments. Conservative portfolios are more risky when considering shortfall risk, thus, conversations about risk with investors need to be framed in terms of both equity risk and the risk of shortfall.