Superannuation fund 'should be dismantled'

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Despite achieving a 15.45 per cent return for the 2009-10 year, the New Zealand Superannuation Fund has not increased the security of the country's superannuation and it should be dismantled, a retirement think-tank says.

The fund's performance and portfolio update released yesterday shows it sat at $15.63 billion at June 30 and its annual result this year is a big improvement on this time last year when it reported a 22.14 per cent loss in the midst of the global financial crisis.

However, the fund also indicated its accumulated return since it began operating close to seven years ago was 0.51 per cent below Treasury Bill short-term interest rates. That underperformance widens to 3.01 per cent when compared with the Guardians' publicised aspiration to achieve a performance of the Treasury Bill rate plus 2.5 per cent.

Retirement Policy and Research Centre co- director Michael Littlewood said the T-bill rate was not an appropriate measure, and the dearer 10-year government bond rate should be used as the "hurdle".

"The loss to date against that hurdle rate will now be a bit over $1.3b since the Guardians started investing our money in 2003.

"This is an estimate as we'd only get the audited accounts in September or October," Mr Littlewood said.

That $1.3b deficit "gives taxpayers no additional return to reflect the equity premium that should be required over the cost of debt", he said.

Last year the Government suspended its $2b yearly payment to the fund, contributing only a one-off payment of $250 million at the start of 2009. Had it contributed in 2009-10, it would have had to borrow the money at 6 per cent to 6.5 per cent, Mr Littlewood said.

That was much less than the fund's 15 per cent return in the past 12 months. "In retrospect it would have made a better return with that borrowed money in the fund. However, that obviously is not sensible, and it's very difficult to judge this question just on the basis of one year."

He said that looking at the Government's balance sheet as a whole, "the fund actually hasn't increased the security of NZ superannuation. It has lost money overall for taxpayers".

A NZSF spokesperson said the fund had no comment until after its 2010 annual report was published later this year.

- © Fairfax NZ News