$30m lost in halting payments to Cullen fund

BY VERNON SMALL
Last updated 05:00 17/04/2010

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Halting contributions to the Cullen superannuation fund has cost the taxpayer more than $30 million.

If full contributions had been maintained, it would have earned almost $50m more, calculations based on the fund's returns to the end of January show.

Even accounting for the extra borrowing costs the Government would have faced to keep up contributions, that would still have netted taxpayers about $1m a week during the past eight months.

The effect of the contribution freeze on the long-term size of the New Zealand Superannuation Fund – set up to help pay burgeoning pension costs as baby boomers retire – will be even greater.

The Government paid $250m into the fund this year. Under the Treasury's normal track it would have paid $15.5 billion. It has said it will not make further payments until the Budget returns to surplus.

The Treasury had estimated that would not be until 2020. That would mean by 2050 the fund would be worth $49b less than if contributions were maintained.

Then the fund would cover just 7 per cent of the cost of superannuation, against 11 per cent under the full-funding model.

Labour leader Phil Goff said the foregone income backed up his view that National's decision to suspend contributions was stupid. "It has cost New Zealand taxpayers tens of millions of dollars in less than a year and has undermined the certainty and future of the super fund.

"It was a short-term decision taken for purely ideological reasons because National has never been committed to the super fund."

But yesterday Finance Minister Bill English stood by his decision, made in last year's Budget.

At the time the global economic crisis had slashed the value of investments and the fund was recording big losses.

But some analysts argued that was the wrong time to stop contributions, because it was best to invest more when prices were low. The Treasury and fund chief executive Adrian Orr also opposed the freeze.

Markets have since improved, bringing the fund back into the black. Budget surpluses are now expected within six years and Mr English has said that could see full contributions reinstated sooner.

Mr Orr declined to comment further yesterday, but last year he said it was premature to suspend payments to the fund. Halting them would undermine its long-term purpose, and the cost of the extra borrowing should not be singled out.

He said it would be equally valid to talk of the Government borrowing to fund tax cuts, or to pay for schools and hospitals.

Meanwhile, Treasury figures show the amount needed for the fund will be much higher after the contributions' "holiday" than would otherwise have been the case – $2.7b against $2.1b a year – but it will never catch up to where it would have been if contributions had been maintained.

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Chairman David May said in the fund's 2009 annual report that the change meant the "buffer" effect of the fund would be less.

But a spokesman for Mr English said it made sense to suspend contributions while there were no surpluses to invest. It was misleading to consider investment returns in isolation from pressures on the economy and the Government's finances.

"Borrowing $15b to $20b during a forecast decade of Budget deficits to invest on risky assets such as sharemarkets would have put New Zealand's international credit ratings at risk, pushing up interest costs to the Government, businesses and households, and risking thousands of jobs."

- The Dominion Post

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