Maintaining Superannuation Entitlements

Hon John Key

In these uncertain economic times it's important to provide certainty for older New Zealanders on fixed incomes.

We know our ethnic communities have questions about Superannuation.

The National-led Government will maintain Superannuation payments at a minimum of 66 per cent of the average wage, and people will continue to be eligible for Super when they reach the age of 65.

Despite reports to the contrary, National's decision to defer payments to the New Zealand Superannuation Fund will not affect Superannuation entitlements.

It is important to remember that the Super Fund was set up to invest government surpluses, putting that money aside to help with Superannuation expenses in the future.

As a result of the recession, government accounts are no longer in surplus, and surpluses will not re-emerge for a number of years. So we are holding off making full contributions to the Super Fund until the government runs an operating surplus big enough to fund those contributions.

It would be reckless to borrow money to continue making full contributions to the Super Fund. The fund is largely at the mercy of global share markets and borrowing large amounts of money to invest in the fund risks burdening future generations with more debt.

To make full contributions to the Super Fund we would need to borrow $30 million a week, or an extra $1.5 billion a year - a figure that will rise in future years. That is like a household borrowing money to invest in the share market, on top of having a big mortgage, a car loan, and a whopping credit card bill.

Holding off on making full contributions to the Super Fund until the Government is in surplus will not have any detrimental impact on New Zealand superannuation entitlements, either in the short of longer term.

Future funding of Superannuation at current levels is locked into the Government's long-term spending path and is reflected in all of the Budget projections.

In fact, far from putting anything at risk, the combination of measures we have taken in the Budget actually secures Superannuation entitlements in the future.

In coming decades, when demographic pressures begin to push up the total cost of Superannuation, it is important that the Government is in surplus, has a moderate level of debt, and is not burdened with high borrowing costs.

That is a situation we are now forecasting, thanks to the measures we have taken in the 2009 Budget.