English to amend Super Fund bill to maintain independence

Finance Minister Bill English plans to amend legislation that lets the New Zealand Superannuation Fund streamline its investment structure to prevent politicians from interfering with its management, dropping recommendations drafted by a select committee.

The New Zealand Superannuation and Retirement Income Amendment Bill passed its second reading yesterday, though Mr English told the House he plans to introduce a supplementary order paper that would drop the need for ministerial approval over investment decisions. The main feature of the bill lets the Guardians of New Zealand Superannuation control fund investment vehicles (FIVs) – holding companies the fund would use to invest in other entities, funds and assets.

Mr English plans to drop a clause inserted by the finance and expenditure select committee's report on the bill that would have required ministerial sign-off on the use of FIVs to ensure the fund's investments were passive, saying politicians interfering to the fund's management was the "biggest risk to the taxpayer."

"It is not consistent with the Guardian's independence, as originally set up by Dr Cullen in a very thorough manner, and supported, I think, by most of the Parliament at the time," English said in his speech introducing the second reading. "That independence means that the Minister of Finance should not be approving investments or classes of investments."

The Super Fund was set up by then Labour finance minister Michael Cullen to help pre-fund the pension bill of the 'baby boomer' generation, and has grown to $28.97 billion under management.

Mr English said he was comfortable that existing controls would ensure the fund doesn't go beyond its mandate.

"If this fund were to show that it could not find that balance remaining independent, then I am sure the government would want to see legislative action taken," he said.

The fund estimates the cost of not being able to control passive investment vehicles to be about $50 million through foregone opportunities, taking on more risk and the result of higher fees, though the Treasury's advice to the select committee didn't view savings as the primary driver for the legislation.

Labour Party finance spokesman Grant Robertson said his party supported the legislation and the independence of the fund's manager, though he said it would be completely possible for a future government to change the parameters of its mandate.

"We do think that, for example, it would be possible to take a small portion of the fund's resources and see it invested in small and medium enterprises, or in funds that would in turn support small and medium enterprises," Mr Robertson said. "That is not the minister of finance directing how an investment would be made; it is merely creating the framework in which the guardians would operate."

The Green Party opposed the legislation, with co-leader aspirant James Shaw saying they hold "a deep concern that the type of vehicles that are being authorised by this bill will enable the use of tax havens."

In its submission on the bill, the NZ Super Fund noted earlier Green Party opposition at first reading, and said, because it pays tax in its home country, if it didn't use tax-neutral jurisdictions it might be taxed three times rather than twice.

"Tax-neutral jurisdictions remove the need to pay a third layer of tax on the same income, when investing in an investment fund alongside other investors," the Super Fund said in its submission. "This reduces unnecessary tax leakage and maximises the returns to the fund which ultimately reduces the burden on future New Zealand taxpayers."

Other concerns were raised about excluding the FIVs from the Official Information and Ombudsman acts, though they were allayed by the fund being subject to information requests.

(BusinessDesk)