Budget 09: Soothing words over funding pension

The Government's decision to suspend payments to the New Zealand Superannuation Fund for up to 11 years has sparked fears of a shortfall to pay for the cost of the retiring baby boomer generation.

But the Retirement Commissioner and policy experts say the public should not be concerned as the Super Fund was only designed to part-pay for the cost and there are other ways to fund it. The Super Fund was set up in 2003 to help pay for the costs of the baby boomer generation and was due to begin giving money back to the Government from 2027.

Finance Minister Bill English yesterday said the Government had decided to suspend payments to the fund until it had an operating balance sufficient enough to meet the contributions.

That is not expected to be until 2020/21. The Government was due to contribute $1.5 billion this year, increasing to $2 billion a year over the next decade. But it will instead only put in $250 million this year and that money will be earmarked to be invested in New Zealand.

The change will mean the Government will not ask the fund to give money back until 2030 - a three-year delay and the fund will contribute less because it will be much smaller.

Labour leader Phil Goff slammed the decision and said it signalled the death knell for superannuation for generations of New Zealanders. "Ongoing contributions to the Super Fund are essential to guaranteeing future super payments to New Zealanders.

"The net result of today's decade of deferrals will be that future entitlements to super are put at risk no matter what pious pledges Bill English makes now."

Mr Goff said the change would leave a $20 billion hole for future generations to try and dig themselves out of.

Martin Lewington, head of KiwiSaver default scheme provider Mercer, warned the short-term action could bring long-term pain.

"While we recognise the Government is under significant budgetary strain, like many countries around the world, we're concerned suspending contributions to the fund - even on a temporary basis - may put future Governments and generations under significant pressure to change NZ Super.

But Mr English said the change would not affect people's entitlements to New Zealand superannuation. "The Government's commitment to maintaining these is absolute. New Zealand superannuation will continue to be paid at a minimum 66 per cent of the average wage, from the age of 65," he said.

Susan St John, senior lecturer in economics at the University of Auckland and co-director of the Retirement Policy and Research Centre, said the fund had only ever been designed to pay part of New Zealand super. "It was only ever going to pay a fraction of New Zealand super. The rate at which NZ super is paid and the age of eligibility is quite separate to the fund."

Ms St John said as long as politicians continued to support the contribution rate and the 65 year age of eligibility people should feel secure. "So long as the politicians work to retain the parameters that give people security."

She said it was sensible for the Government to not borrow money to continue to contribute to the fund.

Retirement commissioner Diana Crossan believed people should not be worried about the contributions to the fund going on hold and the affect it might have on New Zealand super.

"My understanding is New Zealand is in good shape to pay for the future costs of retirement."