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Sam Stubbs, Simplicity Co-Founder and Managing Director explains why.
New Zealanders have already saved over $110 billion in their KiwiSaver accounts. And, like a rising tide, we’ve hardly noticed how fast it’s grown. That’s what happens when you save a little each week. But saving $110 billion is not as good as it seems, because Australia has over NZD $3.8 trillion saved. That’s 3,800 billion dollars.
To put that in perspective, Australia has 5 times our population, but over 34 times our retirement savings. And it continues to romp ahead, because Australians already save 11% and it’s compulsory. In contrast, KiwiSaver contributions are usually 6% and are voluntary. To show the economic power of this, a 5% average return on Australia’s $3.8 trillion saved is NZD $190 billion a year in interest and investment gains. That’s an average of 44% of New Zealand’s GDP in investment returns – every year! And that’s why, when you go to Brisbane, the buildings are taller than Auckland, the infrastructure is better, and the people are richer. And it’s also why our nurses and teachers are easily lured away by Aussie employers.
Anywhere in Australia pays more than Auckland because it’s richer, and it’s richer because they’ve saved more, invested more, and have better taxes to pay essential workers. This is not rocket science. Save more, and you can spend more. And the overall economic effects of investing those savings are dramatic over the long term. Why? Because local investment is there for the long term. This is new to us. Traditionally, our long term investment has been overwhelmingly in housing. And without stable and growing KiwiSaver investment in the real economy, New Zealand has been a boom and bust economy – heavily reliant on the property market and commodity prices.
But in Australia, where their pension funds have invested a lot locally, they’ve had only had one (brief ) recession in 27 years. That’s because, no matter how much the price of their export revenues went up and down, their pension funds were investing in the local economy.
A classic example is construction. When the building industry relies on developers pre-selling and borrowing to the max, they really struggle when the industry turns down. But when KiwiSaver is funding the build, it carries on through the cycle. That keeps people in jobs, spending money, paying taxes, and smoothing the economic downturn.
This is now observable in Auckland. Just as builders and developers are doing it tough, KiwiSaver funded Simplicity Living is expanding it’s development and building activities across Auckland. In three years it already has 6 sites and well over 1,000 homes built, in build or in development. And it’s the same with investing in start up and high growth companies.
When KiwiSaver managers invest in the sector, it gets the financial life blood to grow and thrive. And that means more and better paid jobs. So given that we are now starting to save properly via KiwiSaver, our economic future looks very bright indeed. And if we do what the Aussies did, making it compulsory and slowly rising contributions over time, NZ could have the best 30 years ever. This is not rocket science, it’s what our grandparents would tell us to do - save the pennies and the pounds will look after themselves. You heard it here. The next 30 years could well be th
best ever. There will be bumps along the road, but the long term trend is definitely our friend. And the faster we get to compulsory KiwiSaver, the richer we will all be.
For more, visit simplicity.kiwi
Tags: opinion