The PM is sandwiched on Cullen Fund questions between ACT (which has Green support in backing calls to suspend payments into the fund) and United Future’s Peter Dunne (urging National not to tamper and warning against making state pensions a political football). John Key is keeping his powder dry: he hasn’t ruled out suspending or lowering Govt payments to reduce the budget deficit, as the recession deepens. But in post-election briefing papers the Treasury favoured suspending the payments to provide cash for infrastructure spending. Savings specialist Michael Littlewood goes further, urging a review of the need for the fund. Despite recent losses (more than $2.5bn in the past 12 months), he notes there’s about $12bn invested. The Govt is contributing around $2bn a year, but it makes no sense to borrow to invest in risky financial markets. So stop the annual contribution while we discuss whether we need or want the fund. If it continues, let’s discuss its investment strategy.

Look Further Ahead. The case to stop the Govt’s payments seems compelling. But we must look beyond the recessionary short term: the ranks of our superannuitants will be swelling over the next few decades and the Cullen Fund was set up to build a nest-egg for the time when they outnumber the income earners who support them. Many factors come into an appraisal. The key one is getting returns over a period of time in excess of borrowing costs. Borrowing (let’s say) for 5% for investments which generate 10% returns is what wealthy people do to become wealthy, so why not Govts, which can borrow much more cheaply than others? And while the Cullen Fund has shrunk in the past year, the same is true of most investment funds because of the global recession and slump in world sharemarkets.

Borrow Now, Or Later. Anyway, considerations should be long-term. The Govt could borrow the investment now and pay back the interest over a longer period while building up the Cullen Fund. Or it must brace to borrow in 20 or so years to pay for elderly citizens’ national super and health care. Whether we need the Cullen Fund is another debate. For now, we have one and most advisers favour putting a range of assets into an investment portfolio. It’s not uncommon for householders to be paying off mortgages as well as having shares and bonds – assets and liabilities. The trick is maintaining a healthy balance.

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