What is Superannuation Fund and how it is different from KiwiSaver?

Summary

  • Superannuation Fund is a sovereign wealth fund.
  • It is for people above 65 years of age.
  • It invests in equities in NZ and overseas.
  • It provides supplemental income to the Kiwis.

Superannuation Fund in New Zealand is a government fund, which invests for New Zealanders. It provides superannuation for people over 65 years of age and the purpose of the Fund is to partially take care of the future cost of the New Zealand Superannuation pension, expected to increase as a result of the New Zealand’s ageing population.

This Fund was created by the New Zealand Superannuation and Retirement Act 2001 by Michael Cullen, who was then Minister of Finance under the Fifth Labour Government and is also famously known as "Cullen Fund".

Historically, the New Zealand Government had contributed NZ$14.88 billion to the fund by 2012. The sovereign fund posted a record 25.8% return in the 12 months till 30 June 2013. In the 2009 New Zealand budget, the National Government suspended payments to the fund. Contributions were proposed to resume in 2020/21 when the Government's net debt to GDP fell below 20% again. Instead, the labour government started payments into the superfund again .

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How much does one receive in superannuation payment?
The amount you receive in the superannuation payments depends on one’s marital status, living situation, whether you receive an overseas or other pension or not and a tax code. Definitely, it is not enough income, it is only supplemental to your other income sources.

Who qualifies for the benefit
However, those who qualify for NZ Super include a New Zealand citizen or permanent resident of 65 years of age. They should have lived in NZ for 10 years since the age of 20 or lived in the country for 5 years since the age of 50.

KiwiSaver and Super Fund

Many people confuse Kiwisaver with NZ Super. However, these are two different things. While NZ Super only supports a very frugal lifestyle and most people cannot live off it completely, KiwiSaver is the money you save to supplement Superannuation. Setting up and contributing to a KiwiSaver fund is an excellent way to ensure you have a good retirement.

In the Budget, the Finance Minister, Grant Robertson had announced that the benefits would increase under Super Fund. For instance, training allowance available for higher-level courses and other changes, childcare assistance, student support increases, orphan benefits, unsupported child benefit and work capacity medical certificates.

It was also announced in Budget 2021 that all main benefits would increase by NZ$20 per adult per week. This will happen automatically – one doesn’t need to apply for it, the provisions say.

Investment strategy of the Fund
After an initial start-up period, the Fund began investing in NZ companies in 2003. It started with an initial contribution from the government of NZ$2.4B in 2003. The government has contributed nearly NZ$15B to the fund. Today, its total value is NZ$53B.

The investment strategy is that the Fund chooses relatively high-risk portfolio, keeping the long-term goals in mind. The advantage of this fund is that it has a long-term framework, so it can buy in equities when others are selling or vice versa.  

The Fund invests majorly in New Zealand,  it also invests overseas. In order to make as much money for New Zealanders as possible, without taking too much risk, it invests in a wide variety of investments both in NZ and globally.

Initially, the funds were managed by outside investment managers, but now they have a team to manage its portfolio internally. In the home country, it has become one of the largest institutional investors. Its NZ$6.3B worth of New Zealand investment portfolio (or 14% of investments) includes more than NZ$1B in the local share market, with large investments in big companies such as NZ Gourmet, Fidelity Life, Kiwibank, Hobsonville, and Datacom, etc.

As recently as February 2021, NZ Super Fund invested NZ$100M to a new investment fund managed by Auckland-based Pioneer Capital. Through this, the Fund will invest in NZ companies that are seeking international growth in high-potential sectors. The NZ Super Fund’s Head of External Investments and Partnerships, Del Hart said high-growth mid-cap companies were an important part of Super Fund’s diversified portfolio. The NZ Super Fund is the main investor for Pioneer Capital Partners.

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