16 October 2008

Superannuation Fund Investment In NZ

If John Key and National want to make this policy work then they should ask the originators of the idea – NZ First, said deputy leader, Peter Brown.

Key wants to compel the Super Fund to invest 40% in New Zealand infrastructure. That can only result in putting downward pressure on the return the fund will achieve. Organisations will know of the obligation and, in essence, simply tell the Fund they will borrow from it at a rate they effectively will determine.

Whilst this might seem a good idea, in terms of maximising the return on investment to the Super Fund – which is an essential aim, it is daft. For the long term security of superannuation it is absolutely essential the Fund maximises its return and sight must not be lost of this objective.

What should happen is quite the reverse. For example, the transport agency might determine that road building needs to advance at a greater rate, perhaps because the ingredients (bitumen, oil, steel, concrete and labour) will only increase in cost. It, therefore, makes sense for the agency to put a case to government to borrow against future income. A similar argument might well be made for KiwiRail/Ontrack.

If there is a sound case made and it is agreed to by the government, the Superannuation Fund could be the first port of call for such funds. Under this method, roading or rail is advanced and the Superannuation Fund gets its required return and remains free from government dictate.

In short, the answer is to allow government organisations/departments to borrow within reasonable limits. With a first call on the Superannuation Fund it could be a win-win situation all round.

“Simple really – but clearly beyond the grasp of John Key,” said Mr Brown

ENDS

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