National Superannuation Fund Challenges and Opportunities for Growth

The National Superannuation Fund is a vital institution for many countries, providing financial security for citizens in their retirement years. It's a complex system, but understanding its challenges and opportunities for growth can help us appreciate its importance.

One of the major challenges facing the National Superannuation Fund is its financial sustainability. The fund's assets are under pressure due to an aging population, which means fewer contributors and more beneficiaries.

The fund's administrators are working hard to address this challenge by investing in new assets and optimizing returns. This includes diversifying the fund's portfolio to include more alternative investments, such as private equity and real estate.

The National Superannuation Fund also faces the challenge of managing its liabilities. The fund's liabilities are growing rapidly due to an increasing number of beneficiaries, which puts pressure on the fund's assets.

The New Zealand Super Fund has shown remarkable growth since its inception in 2003, with a total of NZ$24.94 billion contributed by the Government as of 30 June 2023.

Between 2009 and 2017, Government contributions to the Fund were suspended, but the Fund still managed to recover from the Global Financial Crisis in 2008/09 and the COVID-19 crisis in 2019/20.

The Fund's diversified approach has helped it outperform the Consumer Price Index (CPI) over a 5-year period, ensuring steady investment growth.

The Provident Fund was a significant player in Papua New Guinea's financial landscape, but its history is marked by financial losses due to fraud, corruption, and mismanagement.

Established in 1980, the National Provident Fund (NPF) was a public pension fund that unfortunately suffered severe financial losses in the 1990s.

The NPF was privatized in 2002, and its assets were divested to NASFUND, the country's first super fund.

In 2002, NASFUND was incorporated as a company under the Companies Act, marking a new era for retirement planning in Papua New Guinea.

The NZ Super Fund has reached a record value of $65.4 billion, a significant milestone in its 21-year history. This growth is a testament to the fund's ability to navigate challenging markets and achieve steady returns over time.

The fund's value increased by $9.7 billion in the year ended June, with a return of 11.9 percent after costs, before tax. This is a solid result, especially considering the global recovery in share prices that slightly lagged the fund's reference portfolio benchmark.

The fund's total return exceeded its Treasury Bill return benchmark by 8.1 percent or $4.7 billion, a significant achievement given the challenging investing environment. The fund's growth-oriented nature means that returns generated will vary from year to year, as will the performance of individual investments.

The NZ Super Fund has been heavily weighted to equities, but the fund's managers are actively seeking opportunities to diversify and optimize risk settings to add value through active investment strategies. This approach has contributed significantly to the fund's final result, despite the global recovery in share prices.

As of June 2023, the Government had contributed a total of NZ$24.94 billion to the Fund, a significant injection of capital that has helped the fund grow to its current record value.

The National Superannuation Fund has a robust system of regulation and governance in place to ensure the Fund's assets are managed prudently. The Board-approved investment policies impose controls on the Guardians' management of the Fund.

One key control is the restriction on single asset concentration, which means the Fund cannot invest more than a certain percentage in a single company. This helps prevent the Fund from being overly exposed to any one business.

The Board's policies also limit concentration with one investment manager, which helps to prevent any one manager from having too much control over the Fund's investments.

The Fund's Board-approved investment policies also include restrictions on actual portfolio risk, which helps to ensure the Fund's investments are diversified and managed to meet the needs of its beneficiaries.

The Board's oversight and control mechanisms ensure that the Fund's investments are made in a way that aligns with the Fund's objectives and risks are managed appropriately.

One of the primary challenges facing the National Superannuation Fund is its vulnerability to investment risks, particularly in the context of its large-scale investments in the stock market.

The fund's investment in the stock market has led to significant losses in the past, such as the 2008 financial crisis.

A key issue is the fund's reliance on a single asset class, which can lead to over-exposure and increased risk.

The fund's investment strategy has been criticized for being too conservative, which may not be sufficient to meet its long-term goals.

The National Superannuation Fund's investment issues and challenges are a major concern for its stakeholders, including policyholders and the government.

The Commission of Inquiry into Frauds was established in April 2000 to investigate allegations of fraud and mismanagement at the NPF.

The Commission was chaired by former National and Supreme Court Judge, Tos Barnett, who had previously chaired the government inquiry into the Papua New Guinea Forestry Authority.

Barnett was assisted by commissioners Donald Manoa and Lady Wilhelmina Siaguru.

The Commission reported its findings in November 2002, revealing that a number of NPF's senior officers had breached their duty and committed criminal offences.

A key finding of the Commission was that Jimmy Maladina, Herman Leahy, and Peter O'Neill profited by PGK2.5 million in a fraudulent scheme involving Japanese construction firm, Kumagai Gumi.

The scheme involved a devaluation claim against NPF, which was paid out as a PGK5.8 settlement, with PGK2.5 million of it being paid to Maladina, Leahy, and O'Neill as commission.

The Deloitte Tower in Port Moresby, built by Kumagai Gumi in 1997, was later valued at PGK108 million in 2010 and is now owned by NASFUND.

New Zealand is facing a significant challenge in the coming decades. The population is aging at a rapid rate, with Statistics New Zealand predicting that almost a quarter of a million more New Zealanders will reach 65 years and over during the 2020s.

This means that by the late 2020s, the 65+ age group will make up 19% of New Zealand's total population. The trend is expected to continue, with a further 266,000 people projected to reach the 65+ age group by the late 2030s.

As a result, the proportion of working-age people to pay tax will decrease, making it more difficult for future governments to fund vital areas such as health, welfare, education, and law enforcement. By the late 2050s, one in every four New Zealanders will be 65 years or older.

This demographic shift has significant implications for the funding of a universal superannuation benefit, as well as other essential services. The challenge ahead is clear: how will New Zealand's government and citizens adapt to this changing demographic landscape?

In the late 1990s, concerns were raised about the National Superannuation Fund's financial liabilities, including allegations of fraud and mis-management.

The fund had increased its debt by approving illegal loans and engaging in fraudulent projects, such as the attempted purchase of the Waigani land and the construction of the NPF tower.

The government introduced the National Provident Fund (Financial Reconstruction) Act 2000 to curb the fund's losses, including an allocation of a PGK1 million annual grant.

In the future, the government will begin to withdraw money from the Fund to help pay for New Zealand Superannuation, starting from around 2035/36.

Withdrawals are a crucial aspect of the Fund's financial plan. From around 2035/36, the Government will begin to withdraw money from the Fund to help pay for New Zealand Superannuation.

The Fund will continue to grow until it peaks in size in the 2070s. This means the Fund is a long-term investment, designed to provide a steady stream of income over several decades.

Financial Restructuring was a major challenge for NPF in the early 2000s. The fund had increased its debt by approving illegal loans from both domestic and foreign commercial banks.

A write down of 50 percent in all member contributions made before December 1999 was announced, equating to almost PGK114 million. This was a significant blow to members who had contributed to the fund.

A special audit report revealed that the total losses were actually in excess of PGK155 million. This staggering figure highlighted the extent of the financial crisis facing NPF.

The government responded by requesting a formal Commission of Inquiry into the financial dealings of the NPF and the allegations of fraud. This inquiry aimed to uncover the truth behind the financial irregularities.

The National Provident Fund (Financial Reconstruction) Act 2000 was introduced to curb the NPF's losses. One measure included the allocation of a PGK1 million annual grant to help stabilize the fund.