Political change is coming to New Zealand, which could impact on the nation’s future generations fund, NZ Super Fund, as politicians on either side of the House of Representatives set out very different visions for its long-term funding and withdrawals.
Although popular on the international stage, Prime Minister Jacinda Ardern’s support at home has declined and she resigned this week citing burn-out. Labour has declined in the polls since its landslide election victory in 2020 when it won the support of one in two voters with the latest surveys suggesting it is on 33%, lagging the center-right National Party on 39%. Even so, Ardern’s resignation will further weaken the Labour Party’s re-election prospects at a time of weakening economic growth.
With a new head of government likely to be appointed in February following leadership elections and Labour looking unsteady ahead of the October elections, a new era beckons with the prospect that the country’s sovereign wealth fund will not receive the fiscal injections it has been used to under Ardern’s leadership.
The Super Fund was created by a Labour-led Government in 2001 to smooth the cost of superannuation between current taxpayers and future generations with investments primarily in foreign assets - a little less jam today for enough jam tomorrow.
Under Ardern, contributions to NZ Super Fund resumed in 2017, eight years after they were stopped by the National-led government as it responded to the global economic crisis. In her tenure, NZ$7.52 billion was transferred to the SWF, while the fund grew by NZ$20.33 billion to NZ$55.7 billion (US$34.2 billion) by end-FY2021/22 – an increase of 57% from 2017.
According to NZ Super Fund’s FY2021/22 annual report, while net contributions over the history of the fund totalled NZ$12.6 billion, it earned NZ$34.6 billion more for taxpayers than the cost to the Government to fund it – as such, the fund has proven its ability to deliver superior returns.
Due to demographic pressures, the provision of pensions to over-65s under NZ Super is set to become increasingly expensive and is expected to double over the next 10 years from NZ$18 billion in 2022. As such, the position of the fund will become crucial from 2035 when the government is set to draw down from the fund, which is projected to reach NZ$150 billion, to minimise the need to raise taxes or reduce other spending to maintain NZ Super payments.
Yet, the National Party has refused to commit itself to maintaining the pace of contributions. National Finance spokesperson and deputy leader Nicola Willis said last year that the party is “broadly supportive” of contributing to the fund “when fiscal conditions allow”, but she would not define the conditions.
If a National-led government is elected and pauses contributions in 2025-2027, it would save NZ$5.44 billion, according to the Treasury’s Super Fund contribution rate model. However, the fund’s balance would be US$5.71 billion smaller by end FY2026/27 at NZ$88.31 billion and NZ$6.95 billion smaller by end-FY2036/37 at NZ$164.29 billion than if contributions were maintained.
The response to that reduction in finances would be to cut the pension pay-out or raise the age of retirement. National Party leader Christopher Luxon has indicated that he intends to raise the eligibility age of national superannuation from 65 to 67 within 15-20 years, costing retirees an extra NZ$50,000. The approach is at odds with a recent review by Retirement Commissioner Jane Wrightson, which recommended the retention of the current eligibility age of 65.
This year could ultimately determine NZ Super Fund’s strength and purpose and the political barometer indicates turbulence ahead. But the National Party's policy to stop funding and raise the retirement age has yet to demonstrate that there will be "jam tomorrow"
