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Last chance to get super right

Superannuation is " the big issue, for this government this term" says Auckland-based actuary Jonathan Eriksen, who is just back from advising the Russian government on its pension scheme.

Tuesday, January 21st 2003, 12:05AM

The Russian project gave Eriksen the opportunity to look at what other countries are doing in this area. The countries he looked at – Sweden, Poland, Hungary, and Kazakhstan – are all trying to pre-fund their state pension schemes in a similar manner to New Zealand.

"They’re all doing it in slightly different ways, but the key point is that [Minister of Finance] Michael Cullen was on the right track in setting up his scheme," Eriksen says.

The key area for development over the next three years, he says, is the ‘tier two’ level to better encourage private savings. Eriksen expects to meet with Cullen shortly to discuss his Russian experience, and says what is needed is some form of compulsory private savings scheme.

"That basically means a payroll tax on employers. But I personally would like to see employees contributing as well. I believe the big mistake Australia made was to set it up as a productivity allowance and the employers paid it. As a result, people say ‘I don’t’ need to save for my retirement; my employer is doing it for me.’ And that’s a mistake. You need employee buy-in."

Eriksen also advocates investing much of the fund in New Zealand. The Russians have limited their scheme to investing only 20% offshore.

"I personally would legislate for 30%, but Dr Cullen has lost control of the fund by leaving the investment policy up to the Guardians of the Fund.

"There’s a global shortage of capital and it's all being sucked into the northern hemisphere. We need to strengthen our own economy rather than the GDP of other countries."

Eriksen says it is important to the New Zealand Superannuation Fund as more than just a pension programme.

"It would be a tragedy if the fund was to be considered merely a super scheme. It is a large fund and it provides enormous opportunity for private equity investments, hedge funds, and some of the so-called riskier asset classes which in fact aren’t riskier than long term equity products."

Eriksen advocates 10% of the fund going into New Zealand’s infrastructure needs.

"You wouldn’t necessarily use capital from the fund as risk capital: you’d use it as a loan, a debenture issue, and you can amortise that and pay it back over time, using road tolls if you like, or fares on light rails, or whatever.

« Guardians on track for key appointmentsAMP & Good Returns launch superannuation website »

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