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Pre-funding a government's future financial obligations - the New Zealand Superannuation case study

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  • Michael Littlewood

Abstract

In 2001, the government established the New Zealand Superannuation Fund. This is intended to partially pre-fund the future costs of New Zealand Superannuation, the universal Tier 1 pension payable to all New Zealanders over age 65. The incoming, National-led government suspended contributions in 2009 and has said it intends to resume those when economic conditions allow. An analysis in a 'total accounting context' would probably have precluded the Fund's introduction in 2001 because the Fund is effectively 100% leveraged and taxpayers are unlikely to be compensated for assuming that risk. Over the six years to 30 June 2009, the Fund diminished the net worth of the government by about $2.6 billion and, even if it recovers those losses, is unlikely to make any significant future contribution to the security of payments of New Zealand Superannuation. In fact, it raises financial risks for taxpayers and may increase the long-term cost of New Zealand Superannuation. The Fund should be wound up.

Suggested Citation

  • Michael Littlewood, 2010. "Pre-funding a government's future financial obligations - the New Zealand Superannuation case study," New Zealand Economic Papers, Taylor & Francis Journals, vol. 44(1), pages 91-111.
    • Handle: RePEc:taf:nzecpp:v:44:y:2010:i:1:p:91-111
    DOI: 10.1080/00779951003614099
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    References listed on IDEAS

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    1. Arthur Grimes, 2001. "Crown Financial Asset Management: Objectives and Practice," Treasury Working Paper Series 01/12, New Zealand Treasury.
    2. John Creedy, 2003. "The Excess Burden of Taxation and Why it (Approximately) Quadruples When the Tax Rate Doubles," Treasury Working Paper Series 03/29, New Zealand Treasury.
    3. Diana Warren & Umut Oguzoglu, 2010. "Retirement in Australia: A Closer Look at the Financial Incentives," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 43(4), pages 357-375, December.
    4. Mr. N. A. Barr, 2000. "Reforming Pensions: Myths, Truths, and Policy Choices," IMF Working Papers 2000/139, International Monetary Fund.
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    Cited by:

    1. Littlewood, Michael, 2014. "Ageing populations, retirement incomes and public policy: what really matters," MPRA Paper 56232, University Library of Munich, Germany.
    2. Andrew Coleman, 2016. "Pension payments and receipts by New Zealand birth cohorts, 1916--1986," New Zealand Economic Papers, Taylor & Francis Journals, vol. 50(1), pages 51-70, April.

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