Problems with pre funding NZ Super

A LEADING United States superannuation expert says the New Zealand Government’s plans to prefund New Zealand Superannuation are commendable, however he says there are two major problems.

Robert Pozen, vice-chairman at Fidelity Investments and appointee to a Presidential Commission on Social Welfare (superannuation), says the two big problems with the prefunding proposal are the clause relating to ethical investments and New Zealand’s peculiar tax system.

Pozen says the clause in the bill designed to appease the Green party is meaningless and “is a problem waiting to happen”. The clause “has the potential for a lot of mischief,” he says.

Pozen believes it is very wishy-washy and doesn’t spell out any ethical, or socially responsible mandate.

“You will find that managers have an excuse for not having good returns.”

No fan of ethical investing, Pozen believes managers should be able to invest in whatever assets or companies get the best returns. He says the fund flows into these funds is being “grossly over-estimated” by some people.

The second problem is that the fund’s guardians will be forced towards investing in passive funds because of their tax-favoured status.

Pozen says New Zealand’s capital gains tax regime is “extremely unusual”.

“New Zealand is the only country I know of in the developed world which has this distinction between active and passive.”

Overall though, Pozen says prefunding is commendable.

—By Philip Macalister