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English Cannot Rule Out Suspending Super Fund Contributions

Fuseworks Media
Fuseworks Media
Bill English. Pic: NZPA
Bill English. Pic: NZPA

By Ian Llewellyn of NZPA

Wellington, Feb 25 NZPA - Finance Minister Bill English says he can not rule out suspending contributions to the New Zealand Superannuation Fund.

The fund was started by former finance minister Michael Cullen to offset the cost of future pensions when an aging population will make it less affordable.

The fund stands at $12 billion and the Government puts in around $2b a year, but its investments have taken a $5.5b hit in the last 18 months.

This has come when the Government's books are in the red and it is facing a massive increase in debt.

Treasury first mooted the idea of a contributions holiday late last year saying it did not make sense to borrow money to go into the fund.

Since then international stock markets have taken further hits as the global recession spreads and deepens.

Speaking to journalists after an appearance before Parliament's finance select committee, Mr English said the idea of a contributions holiday had yet to be considered "seriously".

He emphasised that any debate about the fund was not related to current or future superannuation payments to those over 65.

`The national super entitlement is absolutely written in stone. There is no suggestion of changing national superannuation," Mr English said.

He said he could not rule out payments being suspended.

"We have to look at whether we are happy at the size of the investment losses we are incurring. I mean $5.5b of losses actually wipes out two years of contributions."

Mr English said the law was designed to allow the Government to change the amount it paid into the fund, but it also meant that lower contributions now would have to be offset by higher payments in the future to make up for it.

"There is no free lunch in this."

Mr English was unclear on when the Government might consider the issue, initially saying: "We have a budget to write and any of those kind of decisions will be dealt with in the budget."

Later though, Mr English said that since there had been no discussions as yet, it may not be in the budget scheduled for the end of May.

Options open to Mr English include suspending payments, reducing them or telling the fund and the Government's other financial institutions to stop investing in areas it considered too risky.

Decisions about the fund were part of wider issues about the state of the Government's books, debt levels and how much risk ministers were willing to take.

Mr English told MPs on the finance committee that the Government could find it hard to raise $40b needed in the coming years as it had not been involved in large scale borrowing for decades.

It would also be competing with other countries trying to raise cash and had to convince lenders and credit rating agencies that New Zealand had a credible plan to manage debt and cover risks.

The recession meant the Government was having to take a new look at how it considered financial investments across its agencies because of the high risk environment they were now working in, he said.

Mr English said National remained committed to the superannuation fund.

Labour opposes suspending payments and party leader Phil Goff yesterday called on the Government to make its position clear.

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