Act backing off super fund

By VERNON SMALL deputy political editor

Prospects of the Act Party backing Finance Minister Michael Cullen's giant superannuation fund appear to be waning.

Act spokesman Rodney Hide said he felt positive about the fund when it was unveiled, but the more he studied the proposal, the more questions it raised and the less positive he became.

Dr Cullen briefed Act MPs last Friday on the scheme, which would set aside up to $2 billion a year from Budget surpluses to help meet the burgeoning cost of pensions over the next 50 to 60 years.

At its peak, the fund is expected to grow to more than $240 billion and be equal to 50 per cent of the country's total annual output.

Mr Hide said he was concerned about the impact of currency movements and the risk they created for the fund and for the Government's accounts.

The fund would slow debt repayment, and a higher gross debt would increase the risk from currency volatility.

Mr Hide said the scheme had the attraction of forcing politicians into a 40-year time frame, but a state-run fund was a huge risk.

The Coalition needs the backing of at least one of the minor parties to pass legislation setting up the fund, although Prime Minister Helen Clark has said that it would set the money aside and fight the next election on the issue if the fund was not approved by Parliament.

New Zealand First is expected to support the scheme, with some conditions, as are the Greens.

Meanwhile, Dr Cullen said he was frustrated by private-sector commentators who proposed rigid income and asset testing and a substantial cut in superannuation as an option to his partial prefunding idea.

He said New Zealanders accepted that the present relativities were fair and they were not prepared to see the elderly cut off from the fruits of economic growth.

Asset and income testing were a disincentive to savings and would be a disincentive to those past the qualification age to stay in the workforce.

He said that as far as he could see into the future the qualification age for pensions would be 65.

"I challenge the critics to come up with a clear, viable, fair and politically robust alternative to prefunding superannuation.

"We have deliberately upped the ante on this debate. This debate is no longer about sitting around and trying to find some low-level universal accord that each and every party is prepared to sign up to.

"This debate is now about what the credible plans are for securing the funding for present and future pensioners."

The Budget surplus should be larger than the contribution rate required for the fund, which would peak at about 1.75 per cent of gross domestic product, he said.

"I am perfectly confident that this is affordable."

He said that surpluses of more than 2 per cent of GDP could be maintained on average.

A tight fiscal position was critical over the next two years to meet the Government's targets, with or without a fund.