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Superannuation fund's savings secrets revealed

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NZ Super Fund chief executive Matt Whineray says the record result shows the importance of focusing on long-term investment strategies. (File photo)

Twenty years ago, after a long and bitter political fight, the New Zealand Superannuation fund came into force. Two decades later, worth $60 billion and rising, the legacy of former Labour minister, the late Sir Michael Cullen, has surpassed expectations.

Chief executive Matt Whineray reflects on the reasons behind its success, despite a tumultuous year.

OPINION: A recent report by Treasury into our country’s long term fiscal outlook notes that New Zealanders are, on average, living longer and healthier lives – a trend that is set to continue.

Currently, 16 percent of the population is over 65 years old; that climbs to 26 percent in 2060. Treasury says the amount spent on superannuation to support those in retirement is expected to climb from 5 percent of GDP today to 7.6 percent in four decades time.

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The NZ Super Fund was established to help smooth out this increase and from early next decade the Government is projected to start making withdrawals from the Fund. Initially the amounts are relatively small, but they ramp up over time. By 2040, withdrawals from the Fund combined with the tax we pay on our investments are projected to provide 11.6 percent of the cost of superannuation, moving up to 20.7 percent by 2083. More importantly, returns from the Fund will cover 76 percent of the increasing costs of superannuation as a result of the ageing population.

The NZ Super Fund was never intended to fully pre-fund superannuation, but our contribution gives future Governments more choices for how to cover the increases. From total net Government contributions of approximately $11.1 billion to date (after tax paid is deducted), the NZ Super Fund is now worth approximately $58 billion – and is projected to get much bigger.


The late Sir Michael Cullen, pictured at home shortly before he died. His legacy includes the $60 billion NZ Superannuation fund.

Assuming contributions continue, and we achieve our return expectations, the Fund is projected by Treasury to reach $100 billion by the end of this decade, and by 2060 to hit half a trillion dollars of collective wealth. Our purpose requires us to invest in a way that prioritises that long-term growth. However, like many other investors, our strategies, our assumptions, and our investment practices have been tested during the past 18 months.

From mid-February to mid-March last year, the S&P 500 index of US stocks dropped 30 per cent – the fastest decline of that magnitude ever. On 23 March, the NZX Top-50 Index recorded its biggest single session fall since the 1987 crash. This tumultuous period saw the Fund’s value shrink by some $13 billion. Our focus on the long-term and looking through market cycles helped us navigate this unprecedented period. Maintaining our long-term risk profile allowed us to lean into falling markets and capture value on the rebound. As a result, the 2020/2021 financial year saw us post our highest ever annual return of 29.6 percent (after costs, before NZ tax).

Hiro Komae/AP

The pandemic threw world share markets turmoil along with everyday life.

Being a long term investor doesn’t mean ignoring near term risks – because if you can’t survive the journey, the destination doesn’t matter. Looking ahead to the middle of this century, our focus is on ensuring we have the team, systems, governance structures and operational processes in place to enable us to thrive over the long term while weathering the storms that will inevitably test us along the way.

But it’s not only performance where we have an eye on the long-term. Investment is in large part about assessing and allocating risk. Increasingly environmental, social, and governance factors must feature in any worthwhile calculation of the risk and return of an investment proposition: leaving them out of the equation is irresponsible investing in anyone’s book.

Put another way: if you invest for the long-term, you have an interest in ensuring the economic, environmental and social system supports the value of those investments over that horizon.

This focus on sustainable finance is what will deliver a truly valuable contribution to Aotearoa-New Zealand’s future prosperity.