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An impact of earthquake proportions

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An impact of earthquake proportions.

Thomas Richter invented the Richter scale. This is a logarithmic scale based on the factor of 10, for example, an earthquake of 6 has 10 times the energy of an earthquake of 5. The impact of earthquakes is something very close to the hearts of New Zealanders as we are more than familiar with the colossal impacts they can have on people's lives, communities and the economy at large. The 2011 Christchurch earthquake materially affected the lives of 350,000 people, and will cost circa $50b and take around 15 years to rebuild the city. The real impacts will be far greater and longer than this.

Four years before the Christchurch earthquake, the Clark/Cullen Labour government launched KiwiSaver. The 10th birthday of this event has just passed and is a great time to reflect on the wider impacts on New Zealand, investment markets and individuals. With total savings nearing $41b and 2.7m KiwiSaver members, it is fair to say that today KiwiSaver has changed New Zealand for good. However, these numbers are only part of the story.

The really interesting numbers are not where KiwiSaver balances are today after ten years, but the scale at which they are increasing. Treasury's latest estimates have KiwiSaver balances doubling every three to four years, meaning the impacts over time are on a logarithmic basis, although not quite at the Richter scale level. Even then, New Zealand trails many other nations in preparing for retirement.

Many countries who have had a long term commitment to retirement savings (e.g. Australia, UK, USA, Canada, Switzerland and The Netherlands) have pension assets of over 100% of their national GDP. New Zealand's current GDP is $265b, which dwarfs the current $41b saved in KiwiSaver. So while KiwiSaver has been a success so far, we've only just begun. When New Zealand matches the maturity of these other western nations, the average KiwiSaver balance will be more like $100,000 per member, rather than the existing $15,000.

It is the personal stories behind KiwiSaver though that really matter, rather than the numbers. There are amazing stories from first home buyers and those in, or close to, retirement and the impact their KiwiSaver balances have had on them. As part of the KiwiSaver 10th birthday celebrations, Fisher Funds has profiled a number of our earliest KiwiSaver clients who joined in 2007. You can read their stories here.

There is though another large group not included in these stories. Those who feel empowered by KiwiSaver and proud of their own efforts taking control of their and their family's future retirement lifestyle. Many thousands of Fisher Funds clients carry around a contentment and genuine excitement about the future as a result. This positive aspect cannot be measured in dollars, just like the real personal cost of earthquakes.

This month's newsletter is unashamedly about the last ten years in investment markets and the impact of KiwiSaver. Sometimes it is important to reflect. While people will contemplate major events like the GFC or the Christchurch earthquakes, ongoing everyday game changers like KiwiSaver can be forgotten.

As an aside, it was interesting witnessing Wellingtonians guessing the magnitude of aftershocks following the 7.8 Kaikoura earthquake of 2016. People get pretty good at this and our Christchurch citizens are expert at it. It's time to get New Zealanders similarly engaged in estimating their KiwiSaver balances. This really can have an impact of earthquake proportions.

 

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