If the Government is thinking about suspending contributions to the New Zealand Superannuation Fund then it should drive the idea from its mind with blows and curses.

Advocates of a contribution holiday argue that it is foolish for the Government to borrow money to invest in a fund which is losing value in the avalanche of selling on global sharemarkets.

But it is misleading, first of all, to claim that the Government is borrowing the money going into the fund. The Government gets the overwhelming majority (nearly 90 per cent this year) of its money from tax rather than borrowing. It is arbitrary to draw a circle around any one item among its outlays and say that it is being funded by debt.

It is true of course that it could reduce its borrowing by more than $2 billion a year for as long as contributions were suspended.

But by the same token it could avoid a similar amount of borrowing by halving what it spends on defence, police, the courts and prisons. That does not mean such cuts would be sensible policy.

And the contributions skipped would have to be made good in later years, so what would be the fiscal point?

The fund's legislation requires that if the Government intends to pay in less than the required amount, it has to state the "approach [it] intends to take to ensure that the fund will be sufficient to meet the payments of New Zealand superannuation entitlements expected to be made over the next 40-year period".

There is, in short, as Finance Minister Bill English said last week "no free lunch here".

It is true the credit crunch has knocked the fund about. That is hardly surprising when nearly half of it is invested in equities, largely overseas, and tens of trillions of dollars have been wiped off the value of global sharemarkets.

After clocking up returns of 14.5 per cent a year in its first four years (after fees but before tax) it lost 5 per cent in the year to June 2008 and a further 25 per cent in the year to date.

The value of the fund at the end of January was $11.8 billion, 20 per cent below its peak in May 2008. The annualised return since its inception in September 2003 has been 3.3 per cent, a far cry from the expected 8.6 per cent rate of return.

These are market-to-market calculations. These losses are not realised unless it sells. The earliest draw on the fund assets is 2021. Hopefully the markets will have recovered before then.

Faced with falling markets, long-term savers have a choice.

They can trust their ability to pick the bottom of the cycle and wait until they think it has arrived to climb back into the market.

Or they can keep making regular instalments, trusting their fund managers to make appropriate asset allocation decisions and consoled by the knowledge that falling markets are reducing their average entry price.

In general, one fund manager said, to stop buying when prices are low is not a recipe to maximising returns over the longer term.

Right now the Government can borrow relatively cheaply. Government bond yields are normally in the 6 to 7 per cent range. So far this year it has been able to get bond tenders away at an average yield of less than 4 per cent.

But there are bigger reasons why it should not mess about with the Cullen Fund. It would undermine confidence in the scheme, which at 5 years old is still in its infancy.

Confidence that the scheme was politician-proofed has already been dented by National's policy that 40 per cent of the fund should be invested in New Zealand, which muddles the fund's objectives and pre-empts the judgment of the guardians in asset allocation policy.

If it now defers contributions people are liable to conclude that it is just another political plaything after all. Who knows where that might end?

The rational response, for those who can, would be to compensate by stepping up their private savings.

That would be a counter-productive outcome right when policymakers are trying to stimulate spending.

And would be likely to politicise superannuation policy all over again, when it had seemed a cross-party consensus had been reached in an area where it is essential.

We pay a hefty price already for the fact that it was a political football for so many years.

The cry will be, "It's the Great Recession. Everything is different now." Well the recession does not change the country's demographics or the laws of arithmetic.

If it made sense six years ago to bring forward some (and it is only some) of the future cost of the state pension on to the baby boomers while they are still working, why does it not make sense now?

Critics of the scheme argued that what matters for the standard of living of future superannuitants is the size of the economy then, and that that might be larger if people were given the choice about what to do with their money. But the evidence of recent years is that, given our druthers, we will spend it, and then borrow some more and spend that.

When the country is up to its nostrils in debt to the rest of the world and adding to that debt at a rate of more than $1 billion a month it is hard to argue, though some do, that New Zealand does not have a savings problem. Given that, and when the world is in the grip of a credit crunch, suspending inflows to a long-term savings vehicle doesn't look very smart. Likewise, when our productivity levels are unimpressive and explained at least in part by relatively
low levels of capital per worker, reducing the rate of capital accumulation doesn't seem very smart either.

A feature of the next Budget is likely to be a wider-angle look at the issue of fiscal risk than the traditional focus on debt and debt-to-GDP ratios.

The risks, made brutally evident over the past year, in Crown financial institutions like the NZ Superannuation Fund, the Accident Compensation Corporation and the Government Superannuation Fund's holding portfolios of financial assets are part of that. But so are the liabilities those assets are intended to offset.