Growing Older

Growing old certainly isn’t everyone’s idea of having a good time – unfortunately it’s inevitable.  But growing old has changed the social landscape in NZ along with most Western and emerging economies.

In my 20’s, there were car less days (the oil crisis), high interest rates (up to 20%), high taxation (no GST but marginal rates were 60% at the top).  We used landlines (telephone), wrote letters (to communicate to family and friends), and used the bank to visit for deposits and withdrawals via cheques and deposit books.  Socialising occurred in pubs, sporting clubs or churches, and in places like provincial NZ where I was based at the time – all three.  The most common vice – cigarettes.  In almost all social situations today, the cigarette has been replaced by the cell phone.  It isn’t uncommon to experience groups “having a good time” collectively whilst engaging in a private conversation via their hand held device.  Should people wish to engage in this way so be it, but my point is not the shallowness of attention or interaction:  it is the mentality of the now which supersedes the importance of the future, and unfortunately neither is fully engaged.  Either the now or the future.

By 2050, the number of superannuitants in NZ will have doubled.  That has a double negative affect on future NZ governments.  Less taxpayers at pre retirement and more recipients at post retirement.  Hence in 2003 Michael Cullen and the then Labour Government initiated the NZ Super fund and went on to design KiwiSaver.  Both strategies have had a hugely positive effect upon the NZ economy.  Although the current National government has ceased contributions to the NZ Super fund, due to the fiscal and general financial malaise following the GFC, the fund has provided two great antidotes:  firstly, the fund has grown to $24 billion as at December 2013; second, the transparency of its investment philosophy, principles and practices, provides all long term investors with a comparative reference for their own financial planning and strategic asset allocation.  From the year 2031, the future government of the day will commence draw downs to assist the ongoing payments to New Zealanders of Government Superannuation.  Performance for the fund from 2003-2013 has been 9.74% annualised after fees but before tax; $3.7 billion has been reinvested back into NZ assets, the rest into overseas assets.  The $24 billion total fund is made up of $14.88 billion from the government (tax payers) and $15.2 billion from invested returns. The asset allocation is aggressive (89% growth, 11% fixed income).  This asset allocation should be a positive reference for most long term KiwiSaver accumulators – unfortunately it’s not.

KiwiSaver turned seven on 1^st July2014.  It is quite staggering to reflect on the impact it has had on the national savings landscape.  There are now more than 2.3 million New Zealanders, more than three times Treasury’s 700,000 initial estimate.  These members have already built a $21 billion nest egg.  While retirement is a long way off for many members, 15,000 people have used KiwiSaver to help them achieve the long-held Kiwi dream of buying their first home.

The other effects of the ageing economy are the boom of retirement village operations and the general market attraction for overseas investors to the NZX.  Our sharemarket grew by 24% in 2012, 16% in 2013, and is already up another 10% IN 2014.  It is attracting unprecedented interest from overseas buyers just as compulsory superannuation did in Australia in the early 2000’s.  KiwiSaver is injecting between $400-700 NZD into the economy annually – through the NZ stock exchange.  On March 20 2014 Ryman Healthcare’s market capitalisation exceeded that of Telecom.  Only Fletcher Building remained higher.  Telecom has more than 10 times the revenue of Ryman and earns more than three times as much.  Ryman is in a favourable position in a favourable industry (ageing).  But I know which shareholders are enjoying dividends the most at the moment, and it’s not Ryman.  With a market capitalisation only exceeded by Fletchers Building yet delivering minimalist dividends, it exemplifies the grey tsunami.

Successful investment necessitates forward planning, research, good governance and management.  KiwiSaver and the NZ Super fund are wonderful examples of all these attributes.  Well done Michael Cullen and the Labour government of the time – I give credit where it’s due and only hope the political parties we vote for in the future will have done their homework to the extent of that conceived and implemented back in the early 2000’s.