The Government Superannuation Fund (“GSF” or “Fund”) dates back to 1948, when it was established to provide a way for state sector employees to save for their retirement. Contributors make regular contributions to the Fund and in return, on retirement, receive a defined level of income.
The GSF Schemes were closed to new members from 1 July 1992, except for persons who were eligible for membership through their employment with certain Pacific Island governments. Membership was closed to these persons in 1995.
There are currently some 66,000 members, made up of some 13,000 contributors, 6,000 deferred pensions and 47,000 annuitants. Since 1996, the number of annuitants has exceeded the number of contributors. It is expected that entitlements will continue to be paid by GSF for the next 60 years or so.
The Fund’s assets are insufficient to cover its projected liabilities, i.e. its commitments to pay future entitlements. This shortfall was caused primarily by previous governments deciding not to make employer contributions to the Fund during the term of contributors’ government service. As a result the investment returns on the smaller asset base of the Fund, combined with contributions from members and non-government employers, are not sufficient to meet the annual cost of entitlements to members. The annual shortfall in the cost of entitlements is met by a ‘top up’ from the government each year.
Before the Authority took over in 2001, the Fund was invested entirely in New Zealand fixed interest securities. This kept investment risk to a minimum but it also meant that returns were lower than they might have been over the longer term had the GSF assets been invested in a diversified portfolio. This would have resulted in the annual cost to government of the ‘top up’ being higher than it might otherwise have been.
Other public sector and state superannuation schemes
The Government Superannuation Fund should not be confused with other public sector or state superannuation schemes such as:
- The ‘New Zealand Superannuation Fund’ (also known as the ‘Cullen Fund’). It started operations in September 2003, and is designed to partially provide for the future cost of New Zealand Superannuation. New Zealand Superannuation is a universal benefit paid by the Government, where eligible residents over the age of 65 years receive a pension payment irrespective of income or assets.
- The ‘State Sector Retirement Savings Scheme’, a new scheme for state sector employees, which started in July 2004.
How we operate
All decisions relating to the business of the Authority are made by, or under delegation from, the Government Superannuation Fund Authority Board.
The Board outsources its schemes administration, investment management and custody.
The benefits of outsourcing are that the Authority achieves economies of scale, value for money, widens the pool of available expertise and reduces risk.
Assets and liabilities
The assets and liabilities of the Fund as at 30 June 2012 were:
- Net assets of $3,017 million.
- Total liabilities (accrued benefits) of $14,079 million.
The unfunded liability was $11,062 million (being the difference between the two amounts above).Investment returns from the Fund have no impact on entitlements. The returns do however impact on the amount of ‘top-up’ the Government needs to contribute to the Fund each year to help meet the entitlements. The Fund currently meets 21.10% of the cost of entitlement payments, with the Government meeting the balance.
It should also be noted that the Crown underwrites the total liabilities of the Fund, not just the unfunded liability.