Dream over, says Gareth Morgan

BY JAMES WEIR

The Government should dump the "white elephant" New Zealand Superannuation Fund and give about $3000 back to people through KiwiSaver, says fund manager and economist Gareth Morgan.

In the Budget last week, the Government suspended contributions to the Super Fund, also known as the Cullen Fund, which is worth about $12.5 billion. With falling revenues and rising government spending, the Government ditched contributions of about $2b a year to the fund for at least a decade.

Putting $12.5b from the Super Fund into KiwiSaver would effectively make KiwiSaver compulsory overnight, Dr Morgan said. The alternative would be to give the $12.5b back to people in tax cuts, though that may be too radical for the Government.

With a compulsory KiwiSaver scheme, the state-provided superannuation could be a "safety net" for those who need it, or for those who "did their dough" in a poor KiwiSaver fund.

"You need a last resort [pension]," Dr Morgan said.

John Key's Government also needed to lift the age of entitlement from 65 to about 70, he said, because of the rising costs of pensions for the baby-boom generation as it retires.

New Zealand was clinging to "the lie" that the pension could be maintained at 65 years.

That would leave the Government's accounts permanently in trouble and the state would have to scrape to pay the pensions, or face cutting other things such as health spending.

"It is a total illusion and John Key needs to show some leadership here," Dr Morgan said.

Australia is moving the pension age to 67 over 14 years, Britain is already at 68 and the US is 67.

"Political cowardice (or is that short-term pragmatism?) rather than any prescient appreciation of the future is why Mr Key has opted to dodge calling a spade a spade."

But last week Finance Minister Bill English said in the Budget that the suspension of contributions to the Super Fund would not affect entitlements to NZ Superannuation.

"The Government's commitment to maintaining these is absolute. NZ Super will continue to be paid at a minimum of 66 per cent of the average wage, from the age of 65," he said.

Dr Morgan said yesterday the NZ Super Fund had become a "white elephant" and should be put on the funeral pyre.

The aim of the NZ Super Fund was to cover or "pre-fund" about 14 per cent of the state pension costs of baby boomers in coming decades. The balance would come from taxpayers.

With a 10-year delay before contributions are expected to start again, Dr Morgan estimates 93 per cent of the pension costs will have to be covered by taxpayers.

"The dream is over, economic circumstances have rendered the Cullen Fund a white elephant," he said.

The fund should also be killed off because of Mr Key's suggestion that 40 per cent of the fund should be invested in New Zealand.

Former National leader Rob Muldoon ran a campaign featuring "dancing Cossacks", to put down Labour's idea in the 1970s of a big super fund distorting the local economy.

"Well, this time the Cossack is John Key. Muldoon would be turning in his grave," Dr Morgan said.

The Super Fund had also underperformed against its benchmarks "by a mile" in part because it held no cash going into the downturn, he said.

The Super Fund has received about $15.2b in contributions, but has been hammered by the global sharemarket collapse in the past year and is now worth about $12.5b. In the 10 months to April,it slumped almost 30 per cent.

The fund's annualised rate of return since it was set up is 3.26 per cent.

That is about half of the risk-free rate of return the fund aims to beat by at least 2.5 per cent over the long term.

KiwiSaver funds have been hit in the downturn too, but Dr Morgan argues they would do better because of a range of competitive funds.

With private accounts, people would take a much greater interest how much they had and would change fund managers if they did not perform.

While Dr Morgan runs a KiwiSaver fund and would potentially benefit from NZ Super Fund money, he said: "I still have to compete".

MORGAN'S RECIPE

Put $12.5 billion from NZ Superannuation Fund into KiwiSaver accounts. Equal to about $3000 each. Make KiwiSaver compulsory (Australia already has a compulsory super scheme with contributions of 9 per cent of salaries). Lift state superannuation age from 65 to 70 or so, over time.

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