You can see why Bill English wants to suspend payments to the New Zealand Superannuation Fund but I agree with Dave from Wellington City, who says: “If anything now is the time to increase payments. Shares are so low that when they rebound mega cash is to be made.”
Dave was a minority, however, in this New Zealand Herald pop quiz which included a surprising number of respondents who appeared confused about the nature of the NZ Super Fund (aka the Cullen Fund), some mixing it up with the universal government pension known as New Zealand Superannuation.
Just to clarify – the NZ Super Fund has been set up to pre-fund part of the country’s future pension payments under the premise that it can earn a higher rate of return over the long-term than the base interest rate.
The NZ Super Fund’s official long-term target is “to exceed, before New Zealand tax, the risk free rate of return (the interest rate on New Zealand Treasury bills) by at least 2.5% p.a. over rolling 20 year periods”.
There are some academics who argue that the whole idea of pre-funding is flawed and that the NZ Super Fund is a waste of time – they might be right, will let you know in 20 years.
And it is possible that the Fund won’t meet its long-term return target. But it’s not just investment nous (or luck) that will improve the Fund’s chances of reaching return expectations – size also matters.
The Super Fund can’t guarantee future returns but it can reduce present costs by negotiating lower fees with the external managers who look after the cash by virtue of the volume at stake – it’s like a union for money.
At just over $11 billion, the Super Fund is New Zealand’s largest pool of investment money but in international terms it’s tiny and doesn’t yet carry that much bargaining power, particularly with offshore managers.
The Fund has been declining of late and publicly lashed for doing so – dropping from a high of about $14 billion last year to its current level. But there is some good news in the latest monthly figures with the Fund reporting a positive return of 1.12% in March, outperforming its benchmark by 0.89%.
Dave might be right.
Tags: David Chaplin, Super Fund
Fully agree with the idea that the best time to invest, and thereby securing our future super payments, is when the markets are down. Remember – think long-term, that is what pension planning is all about!
One other point – although the Cullen Fund is not big by global standards now, if we persevere with it, we should grow to a size which would allow us greater bargaining power with the external fund managers. When that happens, we should go for performance-based fees.
I agree with Dave. Now is the time to Buy into further Investments because Share Prices are low. I understand from an article in the Sunday Star Times, that China has been stashing away capital and reserves for some time, just waiting for a time like this, an economic collapse in the Western World,and now is buying strategic Oil and Gas supplies in Europe, which they know will be required in the future.
Our NZ Super or Cullen Fund will also be required to fund our retirees in the future. Maybe the NZ Super Fund should have been putting cash in Reserves, to enable them to now pounce, just as the Chinese have done.
If Mr English wishes to suspend government contributions to the Cullen fund for ordinary wage and salary earners, then he should also lead by example and reduce or adjust the government/taxpayers contributions to the parliamentarians superannuation scheme.
Dave has provided a very good commentary here on the Cullen Fund and the Non Performance of that which Labour tolerated. The Cullen Fund also has given a very bad lead in as much that they Chooose to invest overseas in other countries economies while New Zealand Infrastructure goes begging such as Transpower to replace the very aged Cook Strai Cables in URGENT need of renewal. The Cullen by desire has more confidence in overseas investments than it does in New Zealand. A good piece of Capitalist policy from a Labour Government who invented the Cullen Fund. We do not punish the managers for being inactive sitting watching as the fund goes down the gurgler. Fancy having to pay people to do that!
[...] I noted in an earlier blog April 2009 was quite possibly the worst time, in an investment sense, to suspend payments to the [...]