It's stupid to borrow to save, right? The Super Fund conundrum

Contributions to the Super Fund have been suspended since 2009, until the country is back in the black. But does the logic behind that decision make any sense at all?

Amongst Labour's ground-breaking announcement that it will campaign on raising the retirement age and introducing compulsory Super, another major decision got little attention.

The Opposition says it will also kick-start government contributions to the New Zealand Super Fund, which were suspended by National in 2009.

Whether voters end up viewing those other policies as brave or insane, this is a crucial decision that shows a commitment to saving for tomorrow rather than spending today.

And if there's one thing just about every party agrees is vital right now - given the high household debt we have in this country and the economic crisis unfolding in Europe - it's that we need to save more.

Baby-boomers have done very nicely out of the state their entire lives, and unless they want to dump the bill on their kids and grandkids, they need to start putting something aside pronto.

The tragedy of National's decision to cut its payment is that the Fund wasn't able to maximise its return from the markets' rebound in the past two years.

Naturally enough, sharemarkets coming out of the 2008 global crisis made some strong gains. In the year to 2011, the eight year-old New Zealand Super Fund had its best year ever, with a return of 25%.

Fund Chair David May said in the annual report, "This financial year builds on the rebound that occurred post the 2008/09 Global Financial Crisis".

The Fund is now worth $19 billion, but if National had maintained its contributions, it would be even bigger.

So why did National cut contributions? The most commonly used argument is that it would have to borrow to save, and that doesn't make any sense.


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