NZ Super Fund 'not worth the risk'

The New Zealand Superannuation Fund has beaten the cost of debt by $346 million over nine years, according to a new analysis.

That "modest achievement" was not enough to justify the risks run by the Government's super fund, according to an analysis by Retirement Policy and Research Centre co-director Michael Littlewood.

The research centre is based at Auckland University.

In the past, Littlewood has said the now-$20 billion super fund should be carefully dismantled and superannuation payments returned to the original pay-as- you-go model.

"The 2012 numbers add nothing to the case in favour of the super fund's continued existence," Littlewood said.

In a total accounting context, the super fund seemed "little more than fiscal and political window dressing".

The super fund, or "Cullen Fund", has been running for more than nine years, set up to partly pre-fund future superannuation costs.

The Government temporarily stopped contributions in 2009 but planned to resume them in 2019.

The research centre has long questioned whether the fund has added to the Government's net worth.

The only proper way to measure that was by comparing the fund's return with the cost of long-term government debt.

"That's because the Government, if it wished, [could] sell the NZSF investments and repay that debt," Littlewood said.

As with households, it was not sensible to raise a mortgage on the family home and invest the proceeds in shares and other investments, unless the before-tax returns were better than the cost of debt.

Against that measure the super fund's returns were "less than comforting", Littlewood said.

In the year till June 2012, the super fund lost $645m based on what it could have saved by paying off debt instead. For the full nine previous years, the fund beat the cost of debt by $346m.

The fund has said it was set up for a long-term purpose and was weighted towards "growth assets" like shares. That meant it was more subject to short-term ups and downs in the market. It expected to beat the Treasury bill rate by at least 2.5 per cent, but underperformed in 2008 and 2009.

The returns for the first four months of the current financial year have recovered the loss of the previous year. In the first months till the end of October, unaudited results show the super fund's assets rose $1.47b to $20.2b.Fairfax NZ

Taranaki Daily News