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Prefunding super not a new idea

The World Bank says there is merit in prefunding future superannuaation payments, as opposed to a Government dealing with them on a pay-as-you-go basis.

Wednesday, February 28th 2001, 1:50AM

by Philip Macalister

New Zealand is not alone in wanting to prefund future portions of its state pension, New Zealand Superannuation.

Other countries such as economic wonderland Ireland and France are also progressing down this route. What's more, moving from a pay-as-you go basis for state super to a partially funded model has won the approval of the World Bank.

However, it does also point out that there have been problems with prefunding, such as:

  • Funds have been used to achieve objectives other than providing pensions
  • These funds have been difficult to insulate from political influence
  • The rates of returns earned on these funds to date were poor relative to relevant indices and also relative to local bank deposit rates.

A recent article in The Actuary journal looking at the proposed Irish Stability Fund says that one of the biggest issues is having an independent board, and clear investment guidelines free from Government intervention.

"The key to success, it seems, is to appoint independent commissioners with a clear and concise mandate to produce excess performance while being cogniscent of the risks taken," Tom Murphy and Jennifer Richards say in their article.

The option currently before the Finance and Expenditure Select Committee sets out to make the guardians at double arms length from the Government.

One of the big issues yet to be decided are the funds investment guidelines.

On this issue there is likely to be major dissention. The Greens want the fund to be invested ethically, while the Alliance has earlier said it sees the fund as providing necessary investment capital for New Zealand companies.

On the other hand actuaries, such as Michael Chamberlain, says the whole fund should be invested in offshore shares.

Earlier stories:


Invest all the money offshore
Greens want fund invested ethically
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How should the fund be invested? Who should be on the Board of Guardians?
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You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

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AMP Home Loans $200k+ ▲7.14 5.89 6.19 6.50
AMP Home Loans LVR <80% - - 5.85 6.29
ANZ 6.74 6.05 6.49 6.65
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