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NZS Fund

Figure 2.14 – NZS Fund net worth
Figure 2.14 - NZS Fund net worth.
Source: The Treasury

The NZS Fund is an important component of the Government's fiscal strategy. The NZS Fund's assets provide the means for the Government to partially pre-fund future fiscal pressures, particularly those pressures arising from an ageing population.

The NZS Fund makes a deficit in the current financial year …

The NZS Fund is forecasting an operating deficit of $0.6 billion in 2007/08. This is a result of the recent downturn in overseas equity markets (particularly in the United States).

… but the Fund's net worth grows by $16 billion over the forecast period

Despite the 2007/08 deficit the Fund's net assets are forecast to grow to $29 billion by 2011/12, an increase of $16 billion. More than $4.9 billion of this increase is expected to come from the NZS Fund's investment performance; with the remaining $11.1 billion increase from Government contributions.

Table 2.16 - NZS Fund net worth
Year ended 30 June 2007 2008 2009 2010 2011 2012
$ million Actual Forecast Forecast Forecast Forecast Forecast
Opening net worth 9,855 12,973 14,461 17,721 21,152 24,947
Revenue 436 381 427 516 612 715
Other expenses 52 (51) (154) (177) (204) (231)
Tax expenses (707) (259) (323) (404) (480) (560)
Gains/(losses) 1,313 (686) 1,068 1,345 1,597 1,850
Gross contributions from the Crown 2,049 2,103 2,242 2,151 2,270 2,290
Other movements in reserves (25)
Closing net worth 12,973 14,461 17,721 21,152 24,947 29,011

Source: The Treasury

The Government's contributions to the NZS Fund are calculated over a 40-year rolling horizon to ensure that superannuation entitlements over the next 40 years can be met if the contribution rate were to be held to be constant at that level. The Government is forecast to make the required minimum annual contribution for 2007/08 and 2008/09 as calculated by the formula set out in the New Zealand Superannuation and Retirement Income Act 2001.

The underlying assumptions in calculating the contributions for 2008 are the nominal GDP series to 2048, the NZS expense series to 2048 and the expected long-term, net after-tax annual return of the NZS Fund (6.6%) (6.6% in the Half Year Update). The forecast rate of return is based on the Treasury’s assumptions for the rate of return on financial portfolios of Crown financial institutions. The Treasury website contains further information on the NZS Fund, as well as a copy of the NZS Fund model (http://www.treasury.govt.nz/government/assets/nzsf/contributionratemodel).

Table 2.17 – NZS Fund net worth comparison to Half Year Update
Year ended 30 June 2008 2009 2010 2011 2012
$ million Forecast Forecast Forecast Forecast Forecast
NZS Fund net worth          
Half Year Update 15,993 19,488 23,140 27,016 31,102
Change in contributions (134) (170) (45) 9
Change in Fund performance (1,532) (1,633) (1,818) (2,024) (2,100)
Total net worth impact (1,532) (1,767) (1,988) (2,069) (2,091)
Budget Update 14,461 17,721 21,152 24,947 29,011

Source: The Treasury

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