Super idea Dave

You can see why Bill English wants to suspend payments  to the New Zealand Superannuation Fund but I agree with Dave from Wellington City, who says: "If anything now is the time to increase payments. Shares are so low that when they rebound mega cash is to be made."

Dave was a minority, however, in this New Zealand Herald pop quiz which included a surprising number of respondents who appeared confused about the nature of the NZ Super Fund (aka the Cullen Fund), some mixing it up with the universal government pension known as New Zealand Superannuation.

Just to clarify - the NZ Super Fund has been set up to pre-fund part of the country's future pension payments under the premise that it can earn a higher rate of return over the long-term than the base interest rate.

The NZ Super Fund's official long-term target is "to exceed, before New Zealand tax, the risk free rate of return (the interest rate on New Zealand Treasury bills) by at least 2.5% p.a. over rolling 20 year periods".

There are some academics who argue that the whole idea of pre-funding is flawed and that the NZ Super Fund is a waste of time - they might be right, will let you know in 20 years.

And it is possible that the Fund won't meet its long-term return target. But it's not just investment nous (or luck) that will improve the Fund's chances of reaching return expectations - size also matters.

The Super Fund can't guarantee future returns but it can reduce present costs by negotiating lower fees with the external managers who look after the cash by virtue of the volume at stake - it's like a union for money.

At just over $11 billion, the Super Fund is New Zealand's largest pool of investment money but in international terms it's tiny and doesn't yet carry that much bargaining power, particularly with offshore managers.

The Fund has been declining of late and publicly lashed for doing so - dropping from a high of about $14 billion last year to its current level. But there is some good news in the latest monthly figures with the Fund reporting a positive return of 1.12% in March, outperforming its benchmark by 0.89%.

Dave might be right

David Chaplin

Photo/ Former Finance Minister Michael Cullen, who set up the "Cullen Fund"