OPINION SBS

Covid-19, KiwiSaver and – just for good measure – the Black Death

BY GRAHAM DUSTON

"Are you surprised by what has happened?” The question feels familiar. That’s because we’ve seen American political journalists putting it to pundits and commentators constantly over the last few tumultuous years of politics in that country. The answer has almost always been the same: “Shocked, but not surprised.”

That response also sums up how I’ve felt since the onset of the Covid-19 pandemic. The strangeness, disruption and menace to public health that characterise this particular tumult have indeed made it shocking. What is not surprising is the fact that catastrophe in the broad sense has struck.

I’ve been in this business a while. My name often now appears with the words “industry veteran” attached, just to remind me. If I’ve learned anything over the past several decades, it’s that tumult in some form lurks around every second corner. Since 1990 we’ve experienced wars, emerging market crashes, bond market collapses, technology busts, terrorist attacks and the big daddy of them all, the GFC. It’s how the world rolls. And when the world rolls, so do markets. Tumults like these leads to market volatility in the same way the movement of tectonic plates leads to shaking buildings.

The decade that followed the GFC in 2008 was actually relatively calm. Financial markets enjoyed a good run. As that run stretched out, I became a little nervous. Experience told me we were overdue for a correction.

Lo … the pandemic arrived, turned the world upside down, and Covid-19 is still with us. It has put our industry to the test, big time. I have to say the pass rate has not been as high as it should have been. I’ve been perturbed by some things that have occurred in the industry during this crisis.

One of these was the migration of so many KiwiSaver members from Balanced and Growth Funds to Cash and Conservative Funds. In all, 250,000 KiwiSaver members made the switch early in the pandemic, during March and April 2020. This was a panic move, pure and simple, and the consequences were dire for these investors. They ended up well behind where they should have been had they not switched, their losses having crystallised as the markets made their resurgence.

This put the spotlight squarely on the importance of sound investment advice at a critical time. We’ve seen plenty of evidence of that here at FANZ. Our experienced team of advisers rolled up their sleeves and did a power of work when the markets took their initial tumble. They communicated, contextualised, reassured and yes, advised. As a result, we experienced a client switching level in March and April 2020 that was 10% of the industry as a whole (based on our Registry provider’s statistics) and our clients came through 2020 in pretty good shape. The lesson here: good, rational counsel is a necessary counterweight to the impulse to make rash decisions. And it will result in better customer outcomes. Now if I may, let us consider the Black Death. The topic is not unrelated. Europe’s 14th century Black Death was also a pandemic of course. It is what happened after that plague that fascinates me.

My source for this is a treatise written in 2016 by Kiwi historian Professor James Belich, now a distinguished academic at the University of Oxford. In Belich’s view, pandemics differed from droughts, fires, wars and earthquakes in that infrastructure remained intact after a pandemic. You did not have to eat your breeding stock in order to survive (!) As a result, economic recovery was quicker but also very different.

The Black Death wiped out half the population and in doing so doubled the GDP per capita of everything. The remaining population was healthier, the feudal system broke down and new methods and technologies emerged, most driven by a labour saving imperative. For example, a cargo ship that could tack into the wind was invented because you no longer had 200 sailors available to row the ship into harbour in a head wind. Improvements to weapons and armour also emerged, necessitated by depleted numbers of soldiers. The capacity and power of many European countries to go out and colonise the world was largely derived from the technological revolution that followed the Black Death.

My feeling is that we may well look back and see roughly similar trends in the post Covid-19 world. New technologies and work practices have already emerged or have made more rapid progress as a result of the crisis. Some countries will be able to use the momentum gained from having had a relatively “good” pandemic to enhance their position in the world. The changes wrought by the virus will challenge every nation’s powers of adaptability. Some will do better than others.

It’s an example of “hindsight being the best insight into foresight”.