KEY POINTS:
New Zealanders are continuing to place an undue amount of faith in residential property as the primary means of saving for their retirement and are playing it too safe with their investment choices, says financial services giant AXA.
The fund manager's annual Retirement Scope survey, probing the retirement
attitudes of 18,000 people in 18 countries including 600 in New Zealand, found New Zealanders were the happiest people in the world when thinking about their retirement prospects.
The survey also found that more New Zealanders were now making financial preparations for their retirement - 78 per cent against 66 per cent in 2004 - and that they were making the preparations sooner, on average at age 31 rather than 37.
But while there were improvements in some of the survey's measures, AXA New Zealand chief executive Ralph Stewart said AXA had concerns about the way New Zealanders were setting about providing for their retirement.
"Property features big time as a key driver of retirement income as does low risk investments."
Economist Rozanna Wozniak, of AXA subsidiary Arcus Investment Management, said property investment continued to be the retirement strategy of choice for a lot of New Zealanders.
"It is a strategy that has worked and over the last six or seven years has worked spectacularly well. Unfortunately we now have a mindset where we believe it is no or low risk ... but the reality is quite different."
Wozniak said there were times where property investments could go wrong and continue to do so for a long period of time. She pointed to the period from the mid 70s to early 80s when New Zealand's house prices fell by about 40 per cent in real terms, although that drop that was masked by inflation.
While there were currently signs of a housing market slowdown which might otherwise serve as a warning to would-be investors, the recent volatility of equity markets was doing little to convince them that shares and managed funds were a good alternative.
Meanwhile, AXA's survey showed that 75 per cent of working New Zealanders preferred investments with little risk and low returns, which Stewart said was a concern given "longer-term investing for retirement is about balancing risk and reward".
Moreover, the recent market turmoil made for an unfortunate introduction to managed funds for those who had signed up to the KiwiSaver scheme since it began last year.
However, Wozniak and Stewart believed that as time went by, New Zealanders with KiwiSaver exposure would become more financially knowledgeable and would take short term market fluctuations in their stride.
"Getting people to invest more broadly is good for them through diversification but is also good for the economy as a whole because hopefully we can get more money going into productive assets rather than just into building more houses," said Wozniak.
