The New Zealand Superannuation Fund (NZS) has climbed to just under $30 billion after returning more than 1 per cent in November.
According to the latest NZS figures, the fund sits just $35 million shy of its $31.15 billion peak hit this July.
However, the NZS will have to eke out further gains under its own steam until at least 2023 with the government revealing last week it had pushed out the deadline for rebooting Crown contributions by three years.
The government halted NZS contributions in 2009 citing GFC-related budgetary restraints with a promise to start topping the fund up again once the country’s books were in surplus.
An NZS spokesperson declined to comment on the latest government contribution postponement.
Treasury also revised down expected long-term return on NZS assets from 8.3 per cent to 7.7 per cent after tweaking its 10-year NZ government bond calculation model.
Under its previous model – in place for more than a decade – Treasury had assumed 10-year government bond returns of 4 per cent real (or 6 per cent nominal).
“Reviewing the assumption involved the production of a predictive econometric model, analysis of opinion and assumptions from a number of international and NZ agencies, and liaison with the Reserve Bank and the Australian Treasury,” the Treasury statement says. “When all of the research, analysis and review by experts was completed, the decision was made to revise down the assumption to 3.3% real.”
The Treasury analysis also saw it revise up the assumed long-term spread between 90-day bills and 10-year bonds from 20 basis points to 30 basis points.
After plugging in the revised assumptions Treasury estimated a long-term return for NZS of 7.7 per cent. The Treasury estimate agrees with NZS’ revised long-term return assumptions contained in its August ‘reference portfolio’ review.
“The Treasury is not attempting to forecast the NZS Fund’s performance over the next forty years. That would be unrealistic, as there will be economic cycles and unusual events, both good and bad, that cannot be foreseen that far into the future,” Treasury says. “Rather the NZS Fund projections use reasonable assumptions, based on historical averages and existing policy settings, in a setting of ongoing average economic conditions.”