New Zealand Super Fund - fact sheet
Thursday, 28 May 2009, 2:40 pm
Press Release: New Zealand Government
New Zealand Super Fund - fact sheet
The
Government is committed to maintaining National
Superannuation entitlements at 66 per cent of the average
wage, to be paid from age 65. Far from putting
entitlements at risk, the combination of measures we have
taken in this Budget secures superannuation entitlements
into the future. The Government has decided to
suspend automatic contributions to the New Zealand
Superannuation Fund to avoid further increasing debt.
Changes to the Super Fund do not affect
entitlements. This was explicitly stated when the previous
Government set it up. Not taking steps to
control debt would leave us in the mid 2020s with budget
deficits, a high level of debt and high borrowing costs.
This situation would call into question the affordability of
National Superannuation entitlements. The
suspension of automatic contributions will remain until
there are budget surpluses sufficient to fund contributions.
Under current projections, the Government is not expected to
have sufficient surpluses for the next 11 years.
The Government will make a partial contribution
of $250 million to the New Zealand Superannuation Fund in
2009/10. This will help the Fund meet the
Government’s policy of investing 40 per cent of its assets
in New Zealand. The Government will consider whether to make
further partial contributions each year. When
the Fund was established in 2001, the Government said it
intended to make contributions from available surpluses. It
also noted that if surpluses were insufficient,
contributions could be reduced or suspended.
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If
we were to continue making automatic contributions, this
would add $19.5 billion to debt over the next 11 years, with
interest accruing on top of that. Given the
uncertainty and volatility in financial markets, the
Government needs to take a cautious approach to additional
investment, especially when this investment is funded by
debt. The Fund's investment returns for the nine
months to the end of March are $5.5 billion lower than
forecast in October last year. However the main reason for
suspending automatic contributions is that it would require
heavy borrowing, rather than the Fund's performance in the
current environment. The Government is keeping
the fund and its assets. If market conditions improve, those
assets will increase in value. Once surpluses
sufficient to cover automatic contributions return, the
Government intends to contribute the amount required by the
Fund formula. The required contribution will be
higher than it would have been without suspending
contributions, because of the Fund’s smaller size. The
post-suspension contributions will average $2.5 billion a
year for the first five years, compared with a
pre-suspension average of $2.2 billion a year over the last
five years.
ENDS
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