The Government is committed to maintaining New Zealand Superannuation entitlements at their current level but will need to explain how it intends funding them.
Finance Minister Bill English said in his Budget yesterday that entitlements for superannuation were "absolute" at 66% of the average wage after tax, paid from age 65.
He avoided the political minefield entered by the Australian Government of moving the age of entitlement up to 67 over several years.
He also avoided the 1991 National government's folly of cutting super payments and raising the age.
However, contributions to the super fund will be suspended for 11 years.
"When it was set up, the idea of the super fund was to invest budget surpluses.
"The Government was then in surplus and expected to remain so for the foreseeable future.
"Those budget surpluses have disappeared."
Had contributions continued at the previous rate, the Government would have had to borrow an additional $1.5 billion a year, rising to more than $2 billion a year during the next decade, he said.
It made little economic sense to burden future generations with debt incurred financing investments intended to reduce their need to borrow.
The Government would make a contribution of $250 million to the super fund next year to assist it find suitable investment opportunities in New Zealand and support local capital markets during the downturn, Mr English said.
Superannuation will be funded out of future tax take, but that was forecast by Treasury to fall from $41 million last year to $37.8 million this year and $36 million next year.
WHK Taylors taxation principal Scott Mason said deferral of contributions to the superannuation fund was logical and an easy political hit.
Borrowing money at 6% to put it on deposit at 3% did not make sense.
Higher returns were possible but that involved higher risk with borrowed money.
"It would be a brave person who would borrow funds to invest in existing fluctuating international capital markets."
What the Government could do was to borrow to pay for an immediate outlay for health, education and social welfare, but not borrow money to put away for a rainy day, he said.
Consulting and investments firm Mercer New Zealand said plans to suspend contributions to the super fund could bring long-term pain.
Reducing funding now without any other significant reform around retirement saving policy, such as increasing the entitlement age or providing alternative retirement savings mechanisms, would only add to the financial pressure on the fund in the future, Mercer business leader Martin Lewington said.
"We agree with the Government that the current recession will pass. But our population and our workforce will continue to age, and the long-term risks of this cannot be ignored.
"The potential consequences of reduced funding to the super fund could be significant at a national and individual level," he said.
Labour Party leader Phil Goff said the "decade of deferrals" of payments to the fund was the death knell for superannuation for generations of New Zealanders.
"The net result of today's decade of deferrals will be that future entitlements to super are put at risk no matter what pious pledges Bill English makes.
Future governments will struggle to cope with the [Prime Minister] John Key-Bill English superannuation legacy.
National has dug a $20 billion hole at least for our kids to dig themselves out of," he said.
At a glance
Super entitlements absolute at 66% of the average wage after tax, paid from age 65.
Super fund contributions suspended for 11 years.
Extra $250 million to be invested in local capital markets.
Labour says death knell for super payments.
