Source: MIL-OSI Submissions
Source: New Zealand Superannuation Fund
Twenty years after the act that created the NZ Super Fund became law, the Fund’s job to help Government meet the forecast rising cost of superannuation is as important as ever, says CEO Matt Whineray.
Whineray says what the Fund’s architect, then-Finance Minister Michael Cullen, described as ‘a permanent shift in the age structure of the population’ has become entrenched.
“According to a recent Treasury report, New Zealanders are, on average, living longer and healthier lives, and Government spending to support people in retirement is expected to climb from five percent of GDP today to 7.6 percent over the next forty years,” says Whineray.
Whineray says the NZ Super Fund was never intended to fully prefund superannuation. The intention was always to build the Fund up so it could help Government meet the expected cost increases.
“Our job remains exactly as Sir Michael set it out: to ‘smooth over time and between generations the future increase in the cost of superannuation.’”
Whineray says at the time the Super Fund was set up, questions were asked about whether it would be able to generate sufficient returns to best the Government’s alternative use of funds – i.e. paying off debt.
“With the Fund now worth approximately $58 billion, and having to date posted average annual returns of 10.6 percent since inception, those questions have been well and truly answered,” Whineray says.
“From a standing start 20 years ago, we have created a globally-respected, high-performing sovereign wealth fund that is well-positioned to tackle the challenges of the next 20 years and beyond and to continue making a significant contribution to the nation’s wealth.”
Current size of Fund – $58.2 billion
Net contributions received (after tax paid) – $11.1 billion
Current annual return since inception – 10.6 percent
2020/2021 financial year return – 29.6 percent (to 30 June 2021 – after costs, before NZ tax)
Value added since inception over cost of Government debt (Treasury bills) – $39.16 billion (to 30 June 2021 – after costs, before NZ tax)
Future contribution to paying NZ superannuation – In 2040, withdrawals plus tax paid on investments are projected to provide 11.6 percent of the total cost of superannuation, increasing to 20.7 percent by 2083. The Fund is expected to cover 76 percent of the increasing costs of superannuation as a result of the aging population.
Quotes from others
Tim Mitchell, founding staff member, 2002-2015
What are your thoughts on the creation of the NZ Super Fund?
“The creation of the Fund showed extraordinary foresight and discipline on the part of the Government. It’s just extraordinary – one of the most successful interventions the govt has made, given the amount of wealth generated for New Zealand and New Zealanders.”
“As soon as we had some staff, the Board said: ‘Go into the world and figure out what best practice looks like.’ We did that and we’ve never stopped doing that.”
“[We had] a blank sheet of paper. What a fantastic opportunity to design something that works and makes a real difference to New Zealand.”
David May, founding chair 2002-2012
Why does the Fund matter?
“It matters because it’s a nest egg. It’s rainy-day money – and we know for certain there will be a rainy day.”
“Our objective became very simple: to be the best fund in the world. We stuck to the same principles we established at the start: focus on what you’ve got in your toolbox and have a long-term plan. The long-term horizon is so important.”
Duncan Bonfield, CEO of International Foundation of Sovereign Wealth Funds
What makes the NZSF stand out?
“It’s the most transparent fund in the world. The Fund sets standards for transparency and governance.”
“[The Fund’s success] is based on a unique set of endowments: a very long-term outlook, never having to be a forced seller, a strong idea of ‘fair value’, a lot of in-house expertise in various sectors, and its capacity to strategically tilt its investments.”
“[The Guardians] take a stand on things. They’ve taken a lead and are sophisticated when it comes to investments related to climate change, decarbonisation and transition.”
“The NZ Super Fund is probably the best performance over time of any sovereign wealth fund that we know of.”
Rt Hon. Helen Clark – Prime Minister 1999-2008
“The New Zealand Superannuation Fund was established to address the longstanding concern that as the baby boomer generation moved into the 65+ age group, the cost to the annual government budget would become increasingly difficult to carry. The Fund aimed to generate sufficient revenue to cushion that cost through the lifespan of that demographic bubble.”
Minister of Finance Sir Michael Cullen speaks in Parliament on introduction of New Zealand Superannuation and Retirement Income Bill, 13 October 2000
“I move, That the New Zealand Superannuation Bill be now read a first time. This bill is cast against the backdrop of a challenging problem that many members of this House have spoken about on many occasions – that is, the demographic transition towards a more mature and stable structure than we have been accustomed to in New Zealand. The effect of that, on present projections, is that the net cost of New Zealand superannuation is expected to rise from about 4 percent of GDP at present to around 9 percent over the next 50 years. That change is creating significant uncertainty. In my view, that uncertainty is having significant impacts upon such issues as private savings as well.
“The bill seeks to establish a New Zealand superannuation fund to smooth over time and between generations the future increase in the cost of superannuation.
“The fund will build up for around the next 25 years in order to meet part of the cost of New Zealand superannuation in the future.”