Dom Post editorial on Super

A somewhat mixed editorial from the Dom Post:

Last week’s suspension of contributions to the Cullen fund has made one unpalatable fact painfully clear. The age of eligibility for national superannuation is going to rise.

The suspension has not affected that fact significanly. It has always been likely at some future stage. Even Dr Cullen said so.

That is not what the Government says. Both Prime Minister John Key and Finance Minister Bill English say NZ Super will continue to be paid at a minimum of 66 per cent of the average wage from the age of 65.

And that will be the case while they are in office.

The reason the scheme will have to change is that there is a $31 billion hole in the government accounts. That is the hole that will be created over the next decade as a result of the Government’s decision to “temporarily” halt contributions to the fund established by former finance minister Michael Cullen to partially pre-fund the superannuation costs of baby boomers.

No, no, no, no. This is just crap. Even ignoring the reduced debt by suspending contributions, the impact on future superannuation is minimal. Taxpayers in 2050 will fund 91% of super, rather than 88%. The so called hole has minimal impact.

Our level of economic growth is what will determine future affordability.

Stopping contributions to the fund was the right thing to do. Despite the protestations of Labour, it makes no sense to borrow money to speculate on the world’s sharemarkets. Doubters should consider the performance of the fund since it was established in 2003 with the objective of exceeding the risk-free rate of return the interest rate on Treasury bills by 2.5 per cent. Its annualised rate of return is 3.26 per cent about half the Treasury rate and, in the year to April, the fund suffered losses of almost 30 per cent, more than double the average losses of retail managed funds.

Indeed. If the Fund had never been set up, NZ would be in a better position to fund future superannuation. That is a fact – not a projection.

Sure, the world is in the midst of the worst economic downturn since the Great Depression; sure, markets will eventually bounce back; but there is no certainty about which ones or when.

Politicians who think they can read economic portents are free to play the markets, but they should use their own money.

I think it is quite possible that there could be another crisis in five or six years when the level of US Federal Debt gets so high the Government effectively defaults by printing more money to pay its debts.

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