Will our world-leading superannuation fund pay for your retirement?
Our superannuation fund is world-leading but must continue to beat the odds if today’s young workers are to enjoy a meaningful state pension.
Forget about yacht racers or the All Blacks. New Zealand has another class of world beater: investment advisers. Their work propelled New Zealand’s state pension funder to the top of the world rankings.
The winning team is the NZ Super Fund, aka the Cullen Fund, which exists to help pay the future pension costs of retired New Zealanders. In the 10 years until 2022, the Super Fund (NZSF) earned better money than 49 other sovereign wealth or public provident funds tracked by think tank Global SWF. The Canadian Pension Plan was second and Sweden’s AP-fonden was third. A sovereign wealth fund is a state-owned investment fund using government money for long-term goals, often drawing on state reserves.
In 2023, the NZSF grew further, to hover around $72 billion in value, with a rate of return, pre-tax and after costs, of 9.9% since inception. It’s now about $74b.
“We performed very well by any measure,” says its head of asset allocation, Charles Hyde, who adds a 10% growth rate is emerging in the current financial year in the section of his portfolio that is continuously tracked.
The Super Fund was New Zealand’s third attempt in a half-century to navigate an obvious pothole in the economic road ahead, one large enough to swallow a truck. This was the extreme difficulty of paying state pensions to an army of ageing baby boomers when their healthcare costs will have already strained budgets to the limit.
The first solution was a universal, contributory pension scheme introduced by the third Labour government, which was killed off politically by Sir Robert Muldoon.
The second was a compulsory scheme proposed by Winston Peters, which was voted down in a referendum in 1997.
The third attempt was the NZSF, which won through in 2001 after relentless pressure from the late Sir Michael Cullen, who was finance minister in Helen Clark’s government.
Bucking trends
Cullen’s baby started with a rationed supply of ammunition (see “Wings clipped”, below), but it hurled itself into the fray regardless. From the start, it invested overwhelmingly overseas, shrugging off complaints from the New Zealand Stock Exchange about getting a mere 7%.