New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill

I present a legislative statement on the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill.

💬 SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website. And I would ask members leaving the Chamber to do so quickly and quietly, please.

I move, That the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill.

I am pleased to be able to bring this legislation to the House. It marks a moment of the maturing of the New Zealand Superannuation Fund, or the way in which it operates. When the fund was established, it was established deliberately to not allow the Guardians of the New Zealand Superannuation Fund to take a controlling interest in an entity. This was done at the time because the establishment of the fund was obviously taking place and also because, at that point in history, sovereign wealth funds across the world weren’t tending to take controlling interests in their work. Over time that has changed, both in terms of the maturing of the fund here in New Zealand and the approach that is taken internationally.

We undertook, through the Treasury, to do a review of section 59, which prevents the New Zealand Superannuation Fund from taking a controlling interest in the entity, and that piece of work was completed in 2021. What that piece of work told us was that there was a pathway through for the fund to be able to move into this direction. The purpose of the legislation that is in front of us now is to take forward what was said in that report and put it in front of the House for debate.

When I was assessing whether or not it was a good idea to go ahead with this idea, I did speak to the late Sir Michael Cullen as the architect of this fund, and I was reassured in doing so that Dr Cullen thought that the time had come for this move, as he noted to me, as the fund grew in the size of its assets but also in the way that it invested. He had always felt that this would be a course of action that would make sense and he felt that the time for doing this was right. So today we come to the House with the bill that, as I say, amends section 59 of the New Zealand Superannuation and Retirement Income Act to allow the guardians to take a controlling interest in an entity.

The bill also makes a number of other amendments to ensure that the investment by the fund does not result in an entity being treated as part of the Crown, which was one of the concerns at the initiation of the original Act.

Part 2 of the Act makes some consequential amendments to the Ombudsman Act and the Official Information Act to make sure that a private sector subsidiary of the fund would not have the Act applied to them—however, the guardians themselves, of course, remain subject to the Act—and some changes to the Income Tax Act to address the removal of references to fund investment vehicles and to preserve the current tax treatment of New Zealand Superannuation Fund investments.

It is part of the rules of the Act that I consult with other parties about any changes to the Act. I did that across Parliament, and without wanting to put words into the mouths of any of my colleagues in the House, the feedback I received was broadly positive, although I’m sure we will hear from some members about some of the issues they have, and those issues I am confident will be able to be resolved at the select committee when we reach that point.

As the fund has grown and matured, it has increasingly developed the capability to take on a lead investor role with the ability to own businesses. The New Zealand Superannuation Fund wants this ability, and I do think it will provide a significant support to New Zealand’s capital markets. It also will allow the New Zealand Superannuation Fund, as I said before, to bring itself in line with global peers, who, of course, at this point, are in a different place than they were when the Act was passed some 20 or so years ago. Those global peers have shown that sovereign wealth funds can in fact play a significant role in not only the capital markets of their own countries but also in others when they do do this.

Removing the control that is currently in section 59 will enable the fund to access a wider group of viable investment partners and opportunities, especially in strategic infrastructure. It will, according both to the report done through the Treasury but also to the experience of other countries, attract institutional investors who are comfortable with the guardians’ due diligence practices and, as I say, therefore deepening capital markets for domestic transactions. It does also provide an opportunity set for New Zealand investments and the potential to increase the risk-adjusted return of the fund.

The guardians’ flexibility around their investment strategy that will be enabled by this Act should enable the portfolio to realise a greater return after costs for the level of risk taken. That is exactly the position I think New Zealanders would want the fund to be in coming up to a couple of decades past the institution of the fund. It continues to play an important role as a partner in a number of businesses both here in New Zealand and offshore, but this opens up a new pathway and a new strategy.

The guardians, through the amendments that we are making to section 59, may have controlling interests in a number of different ways. These include controlling an entity through ownership of shares, controlling a holding company, controlling their other ownership rights under a trust, contractual rights, or rights to appoint directors—and entities that are so controlled may in turn control other entities in different ways.

I understand that people will want to make sure that there are some checks and balances upon this approach. The bill provides for a review of these changes within 10 years as part of one of the regular five-year statutory reviews of the fund. It is important to note that this bill does not alter the statutory independence of the guardians from political influence in relation to investment decisions, which is provided for in section 64(2) of the Act. That independence is vital. This is simply a mechanism to enable a different form of investment through taking a controlling interest.

Another matter that was in fact raised in the Treasury’s review of section 59 was the question of how to create a framework that would be transparent for New Zealanders to understand the way in which the guardians will go about their work. So they will be including in the statement of investment policies, standards, and procedures the details of a governance framework for the operation and implementation of controlled entities. So I do think it is important that that provision exists so that New Zealanders can understand the way in which the Reserve Bank is going about its work and understand where that fits in. This was a particular matter that was raised in the review and I’m pleased that we’ve been able to pick that up and put it into the legislation.

So, from my perspective, this is a good piece of legislation that marks the further maturing of the New Zealand Superannuation Fund. It gives an opportunity for New Zealanders to know that greater returns will be made, which will enable the Superannuation Fund to grow and play its part in contributing to the future costs of New Zealanders’ superannuation. As a Government, I am especially proud of the fact that we reinstated contributions to the New Zealand Superannuation Fund, on coming into office, and that has seen the fund grow at a rate that unfortunately it missed out on for a few years. This bill will make sure that there is an additional incentive and opportunity for the Guardians of the Superannuation Fund to grow the wealth that we need to support New Zealanders having dignity in their retirement. I commend this bill to the House.

💬 DEPUTY SPEAKER: The question is that the motion be agreed to.

National is offering our cautious support for this bill to progress to select committee. I want to acknowledge the letter we received from the Minister of Finance in November under section 73 of the 2001 Act. He fulfilled his duty to consult with us before proposing amendments to the Superannuation Act.

I want to just talk in these remarks about the history of the Superannuation Fund and the changes that have occurred during the time it has been in place, and to highlight some of the risks we can see with this approach that we think it’s very important that the select committee examine carefully. I think the first thing to say is that we acknowledge the desire from many to see deeper domestic capital markets in New Zealand, and we acknowledge also the need to see investment in strategic infrastructure through those capital markets. Those are both things that we support and that we think are good. We also acknowledge that the New Zealand Superannuation Fund has matured and grown a lot since its inception in 2001, and so it is logical that there will, from time to time, be the need to modernise the legislative framework in which it operates—particularly to ensure it is up to international best practice. And it’s clear when we look across the world that direct investment into entities has become a much more common feature of best practice portfolio management, whether that be by sovereign wealth funds or other such funds. That has been a clear change that has occurred over the past 20 years.

National starts from the position that we want to see the Superannuation Fund delivering good returns to New Zealanders and to be performing well. However, what we don’t want to see is the Superannuation Fund potentially crowding out other investors in this market, and we’re particularly conscious that the New Zealand market is a small one and that the Superannuation Fund is relatively large within that context. So it’s our view that the select committee should be looking at not only what is best practice overseas, but what potential implications those practices would have in the smaller domestic context of New Zealand, and that is something worthy of examination and expert input. So we will be carefully listening to those who submit to the select committee and I will be encouraging a broad range of people to share their views.

So as I said, I want to talk a little bit about the history, because if we go back to the original restriction on the New Zealand Superannuation Fund from holding a controlling interest in entities, that was there right from the beginning, in 2001, and, actually, it was quite an important feature of the Act and of the creation of the fund. That was because the Superannuation Fund was conceived of as a portfolio of financial investments and not actually a direct operator of businesses, which are two quite different functions. It has been, in the past, as I said, normal practice for private investment funds to avoid controlling interests. There were good reasons for why the Crown would want to restrict that, particularly because there could be an implied guarantee by the Crown of the entities’ liabilities in the case of financial difficulty. To put it plainly, there is a risk that if there’s a situation where the Superannuation Fund chooses not to support a company that it has invested in that’s now failing due to commercial reasons: if it’s the company that’s not doing well, but the Superannuation Fund has that majority stake—but potentially that involves people losing their jobs; bad implications that none of us want to see—then the Government and the Superannuation Fund itself face significant political pressure to do a bail out. That creates risks for the way those investments are both selected and managed.

I do want to acknowledge that we’ve had evolution in this space already. In 2015, the then National Government passed the New Zealand Superannuation and Retirement Income Amendment Bill, and that allowed the New Zealand Superannuation Fund to hold a controlling interest in entities formed for the purpose of holding, facilitating, or managing the investments of the fund—so fund investment vehicles. And there was an exception to the restriction that the New Zealand Superannuation Fund does not hold controlling interests in entities. So there is some precedent here, although of course this bill takes it a step further. When the Superannuation Fund brought this to the attention of the Minister—and I understand it was there in black and white in their briefing to the Minister in 2020—they felt that this constraint meant that they had limits on their potential investment opportunities, particularly in markets like New Zealand, where investments tend to be smaller scale, and they felt that the constraint was unnecessary. I’d note that in response to that claim from the Superannuation Fund, Treasury undertook a review of the restriction, and as I’ve noted in my earlier remarks, they shared the view that direct investment has become a much more common feature of best practice portfolio management internationally.

However, there are still a couple of things we need to really watch for here. The first is, when we repeal section 59 of the Act, we do open up the potential for political pressure on the Superannuation Fund about the kinds of investments that it makes. Now, officials have made that warning clearly: they’ve said that they are concerned that removing the restriction on the Superannuation Fund from acquiring a controlling interest might lead to a crossover with ministerial interests, and that creates a risk of lobbying from other portfolio ministers. If I can just spell this out in black and white: imagine a scenario where Michael Wood really wants to get light rail across the line—there really isn’t the money in New Zealand to fund it, and it doesn’t fit within transport priorities for the Crown—and he decides that the way to make that happen is to put pressure on the New Zealand Superannuation Fund to instead make that investment where the Minister of Finance chooses; he won’t make it directly. Now those are the sorts of issues we as a select committee must confront, because I know it will be tempting for members opposite to say and think, “Well, nothing like that would ever happen. No, no, it won’t happen”, but it is our job to foresee things that may happen in the future and to ensure there are appropriate guards against it. So that is an issue that we National members on the select committee will be exploring in some detail because we think the risk of New Zealanders’ retirement savings fund being used for political purposes, for pet projects, is one that we can’t tolerate. So we need to guard against that risk.

The second issue that we think is very important for the select committee to look at in some detail is that issue of bailout expectations: ensuring that the Superannuation Fund is in some way controlled off from the expectation that the Crown will be bailing out companies where, in a normal commercial transaction, that wouldn’t occur. The third risk that I’d highlight is the issue of reputational risk to the Crown, and this is something that officials have seized on, where they’ve said there is potential that, where the Superannuation Fund is gaining controlling interests in an entity, then, from an offshore perspective—or even actually from the perspective of New Zealanders—that is seen then as a Government company and therefore all of its actions reflect on the frameworks of the Crown; reflect on what the Crown thinks is good, bad, or indifferent. I note that Treasury say there are some ways that that could be mitigated, but I think we need to explore that at the committee, because the separation between the Superannuation Fund and the Government is important and we are very conscious of the need to protect that separation.

Finally, I would say that National’s attitude to this bill is an example of our desire to be constructive about the way financial frameworks are formed in New Zealand. We want to see the Superannuation Fund performing well. We do think that there is a case for deepening capital markets, we do think that there is potential that the Superannuation Fund could both create value for New Zealanders and create value for the fund through these sorts of controlling interests. However, as I’ve said, we must proceed with caution, and we will be taking our roles on the select committee very seriously. This bill is a big change and we need to scrutinise it appropriately.

Thank you, Mr Speaker, for this opportunity to speak on the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill. As we’ve heard from the previous two speakers, the New Zealand super fund is a very important part of our financial system and, as the Minister said, it supports people having dignity in their retirement. So it is very important that any changes to the system—that we get it right.

What we’re wanting to do here is to improve the settings of the fund to make it more sustainable. As we’ve heard from the previous two speakers, the fund has matured so that—and we will investigate this at the select committee—that avoidance of a controlling interest is no longer needed and, in fact, it’s unhelpful and limits what the super fund can invest in. I appreciate, from across the House there, that everybody is wanting to support New Zealand’s capital markets, growing those, and this is intended to be one way that will, hopefully, provide comfort for other investors.

On to the bill itself, it’s a very small bill and it’s amending the primary legislation. So, really, you need to look at both the Act and the bill together. The purpose of the Act is to establish this fund and to provide for Government contributions to the fund, and that doesn’t change.

The main part of the Act that is changing relates to the section headed, “Investment of Fund” and that starts at section 58(1), which includes that “The Guardians are responsible for investing the Fund.”, and “(2) must invest the Fund on a prudent, commercial basis and, in doing so, must manage and administer the Fund in a manner consistent with—(a) best-practice portfolio management; and (b) maximising return without undue risk to the Fund as a whole; and (c) avoiding prejudice to New Zealand’s reputation”. So that’s not changing either.

But then we get to section 59, “No controlling interests”, and section 59A, “Fund investment vehicles”—and the previous speaker, Nicola Willis, was talking about that section earlier and amendments made under the previous Government; and section 59B, “Fund investment vehicles not required to prepare statements or annual reports”. So these three sections get replaced by section 59, in clause 6 of the bill, which allows for this change. So they will be replaced with new section 59, “Status of certain entities”, and it goes through what the other speakers have already spoken about, there. There’s also a change to section 61, in terms of “Contents of statements”, and the Minister spoke about that.

I think what is important to speak about, as well, in terms of the previous speech, is section 64. This is around “Ministerial directions” and is not changed by the bill. Hopefully, it will give some comfort to the previous speaker, but I do take her points that this is something that we do not want to get into ministerial interference. So section 64(1) says that “The Minister may, after consultation with the Guardians, give directions to the Guardians regarding the Government’s expectations as to the Fund’s performance, including the Government’s expectations as to risk and return.” But then it says at subsection (2), “Despite anything to the contrary in the Crown Entities Act 2004, the Minister—(a) must not give a direction that is inconsistent with the Guardians’ duty to invest the Fund on a prudent, commercial basis, in accordance with section 58; and (b) must not give a direction to the Guardians in respect of the Fund except in accordance with this section.”

Now, I’d like to just reflect on the slightly unusual process that happens with amendments to this Act, in that the Minister has to consult with the other parties. We’ve heard from the previous speaker that National is very interested in this bill and will be very engaged in the select committee, and I welcome that we will have a very good discussion around this bill and, I’m sure, welcome submissions on it as well.

Finally, I do want to say that it’s interesting that not only did the Minister have to consult with the members in this House, with the other parties, but he was also able to consult the late Sir Michael Cullen about it. It gives me some comfort that he approved of this process. So I commend the bill to the House.

Thank you, Mr Speaker. I think, in this country, we are well served by the two major sovereign investment funds that we have, the Guardians of New Zealand Superannuation and the investment arm of ACC, both of whom manage somewhere in the region of $55 billion to $60 billion. I’ve had a 27-year history with ACC—firstly as a manager, and more recently as the Minister for ACC and the ACC spokesperson. So I’ve got a reasonably deep understanding and admiration for the way in which their investment managers have been able to enjoy returns, on behalf of the New Zealand taxpayer, pretty significantly above the market rates.

Similarly, the Guardians of New Zealand Superannuation have an excellent team with whom I had developed quite a good relationship in my time as finance spokesperson, and I still keep in touch with them from time to time—they are really, really canny people. We often have some political tête-à-têtes over the level of remuneration and bonuses for people in those teams. Well, the reality is they could earn a huge amount more in other wealth funds, here in New Zealand and around the world, if they didn’t choose this form of—albeit highly paying—public service. So I just want to commend them for the work they do on behalf of the New Zealand taxpayer.

But I do share the concerns that were expressed by my colleague and friend Nicola Willis in our cautious support for this bill, the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill, at first reading, and I encourage those with views on both sides of the argument to come along and give the Finance and Expenditure Committee as good advice as we can get, because there are very strong pros and cons on the degree to which big levels of institutional ownership in a stock is a positive or a negative thing.

Now, institutions like this have access to the best analysis and the best sort of insight into whether or not holding majority or controlling interests in companies is a good thing for them. So what it tends to do is that people will follow those institutional investors. And so the naive investor or the common stockholder often looks to those institutional investors to see what they’re doing because they’ve obviously got a track record of getting returns above the market average. So they’re going to be drawn to it.

Now, there’s a double whammy in terms of that in respect to the fact that this is a Crown-owned wealth fund and, therefore, there’s this almost implied sort of Government guarantee to it. Now, we know that’s not the case, but that is a risk, and it’s actually, I think, a risk that was identified by Treasury in their advice on the bill. Conversely, there is—regardless of whether the wealth fund is sovereign or not—always this kind of drag when an institution sells large parcels and or the controlling interest in an organisation. Research that I’ve had a look at suggests that the stock price could drop by as much as 5 percent below its real value simply because an institutional investor has decided to sell down a large portion of its stock. It’s not appropriate to assign the blame or the cause of the drop in the stock’s value simply to an institutional investor’s sale of them, but it does highlight the fact that large controlling interests, in any event, can carry some value risk.

So I think that’s probably why, in 2001, when the scheme was set up, there was this control. Obviously, it was a risk management issue as well, because, you know, if you’re exposed to large parcels and things go bad, then that can be quite a big hit on what was then a relatively immature sovereign fund. Now, it’s had 22 years to mature. So it has been—in the past—normal practice to control a private investment fund’s controlling interests. I’m not sure that the case yet has been made that that restriction should be relaxed for the New Zealand Superannuation Fund, but we’ll keep an open mind on it.

Nicola Willis also raised—and, perhaps, to some quiet derision from the other side—the possibility that there could be political influence on and the use of these funds to substitute for borrowing—and to use an example of Michael Wood, as the Minister of Transport, wanting to dip into it.

Now, actually, Treasury also talked about the possibility that that pressure could be applied. Interesting to see that they warned that the risk of lobbying from other portfolio Ministers “could become more pronounced”. Implicit in that is the fact that they believe that exists now and needs to be resisted. But I think what she described is a sort of an odd form of public-public partnership. Now, I, in principle, quite strongly support the idea of public-private partnerships, actually. And it was a shame that things like Dunedin Hospital and one or two others weren’t actually actively pursued by this Government. But, actually, in the advice given to Ministers when we came to office in 2008—

💬 Hon Dr David Clark: Ah, they want to privatise health. The agenda’s coming out.

See, there we go—see, there we go. Ideological blinkers—ideological blinkers—are staying on all the way to that member’s exit from the House. Well, that’s the point about a public-public partnership: the money is New Zealanders’, whether it’s borrowed or diverted from the super fund into those assets.

But I actually don’t think that’s the worst thing the New Zealand Superannuation Fund could invest in. But I do think there are serious, serious concerns about the extent to which they should be investing in those sorts of infrastructure assets. They have to be long run, but I don’t think they should be the sole investor or owner of them, because I think that’s a risk too big for them to carry. But what Nicola Willis was talking about and what Treasury advised could happen is the degree to which there is political pressure to draw on those funds to fund infrastructure assets into the future. I expect there to be some belt and braces controls around that sort of thing.

The other risk that was highlighted was the sort of bailout expectation—if a company does go bad because it fails due to commercial reasons, and the Government is pressured to support or bailout the company. Now, we saw that with Air New Zealand, actually. So it does happen. But the question is: if you take the politics one step removed—and the whole essence of the Superannuation Fund is that politicians and Ministers are not influencing their investments—then the risk that that could happen in a bailout situation is also quite real. It’s much, much lower-risk if the Superannuation Fund was prevented from having the controlling interest—then that pressure would never be brought to bear because they couldn’t increase the interest above 50 percent. Now, they could. So, yes, there are pros to this, but there are also some significant risks that need to be managed, particularly while there is a Labour Government.

I’ve just got to finish by the ridiculous continuation of the mantra that because the Key-English Government suspended contributions to the New Zealand Superannuation Fund, somehow New Zealanders were better off. Well, I would encourage Grant Robertson—

💬 Hon Dr David Clark: $29 billion.

—or Dr David Clark to go along to their bank. Let’s say he goes along to his bank and he says, “I’ve got a great idea for investment in these shares but I haven’t got any money, so I’m going to borrow it. Please give me all that money and I’ll give you the shares as backing.” He would be laughed out of the bank. But that was exactly what David Cunliffe expected Bill English to do in about 2013, so confident was he that the stock market would go up. Now, had we been in the investment curve we’re in now, instead of whatever number Dr Clark called out, we could have been billions and billions of dollars in the red. And if the member doesn’t think that can happen, he should just go along to the Reserve Bank Governor and ask him what’s happened to the Crown balance sheet after the funding for the Large Scale Asset Purchase programme, which so far has cost this country $8 billion and counting. But you don’t hear the Labour Government talking about that.

I look forward to the select committee process, which should be a bit pointy-headed, but, actually, it will be a very interesting journey as we explore this bill.

I’m pleased to take a call on this bill, and I’m quite interested in the process, but I think that the average public member probably doesn’t know why I would be, so I’m going to try and explain it. The first thing about the Superannuation Fund to get a hold of, if you aren’t familiar with it, is that there’s this thing that is called the “guardians”. The guardians are people who are a board and they’re independent from the Government, and they manage funds. They manage two funds: one is a super fund that is big and broad and it’s meant to really make sure that everybody has investments across the board, and then there’s another fund which is called Elevate, and it actually invests in all the little enterprises which have been funded a little bit, but just need that bit more to become bigger and become more thriving companies. So it’s a really interesting job that those people do, and they’re extremely skilled.

One of the things that’s really important about them is that they’re independent, and so here I totally agree with the Opposition. It’s incredibly important that if we’re going to change the nature of that investment, we change it so that we are entrenching that independence of those groups, so they’re not doing the bidding of the Labour Government or the National Government one day. That’s not going to happen, because those people are going to look after the interests of the investors—that’s all Kiwis—and they’re not going to be influenced. So, absolutely, that’s something that we should all keep an eye on. As my friend Rachel Brooking—who’s the chair of the Finance and Expenditure Committee and cares deeply about these things—says, it’s already kind of entrenched in the legislation that that won’t happen.

So it’s an important step that people have thought about before, but by all means it’s something that we should talk about at the select committee and make sure it can’t happen. I certainly don’t want it going into a hospital, because the suggestion would be it would be like a profit-making thing, and I don’t want that to happen, because the investment is not for that purpose. What I would like to see happen with such money, if there is a controlling interest ability, which is the change, is that the Superannuation Fund does invest in some of those big projects in New Zealand that need doing that probably aren’t suitable for the Government but they might be suitable for a big super fund—things like, perhaps, long-term rental. Overseas, we have super funds that build big apartments in places like Belgium, and those apartments are actually privately run, but they’re run by the big super funds. So they’ve got these big institutional investors going that really care about things like long-term rentals and having homes, etc.

What is happening here is the legislation’s been through one stage where it’s been guarded against a big investment in one thing, and we’ve got to the point where the guardians themselves and the way they’ve conducted themselves are so good that, actually, if the guardians took a controlling interest, we’d probably see investments from other super funds come alongside it, because they’d know this was a well-managed project. So, actually, we’re hopefully encouraging a whole other layer of investment that we need in this country, super fund to super fund or other big investor. I think we’re all agreed that this is the time for this to happen, because the fund’s got to that point where it’s mature.

I also point out that, actually, one of the things that is in this legislation is that the guardians are going to have to establish a statement of policies and standards and procedures. So they’re not just going to do whatever they want without anyone knowing; there’d be a thoughtful and transparent process that says, “These are the kinds of things we decided to invest in.” I’m particularly keen on someone investing in a dry dock up north, because if they do that—it’s a big investment and not many can, but if they did something like that, well, actually, that would be really good for Auckland because we’d get rid of all the big boats that clean themselves in Auckland harbour and they’d go to a place where they could be actually environmentally friendly and cleaned, and we’d have a better and prettier harbour. And it would help, obviously, my friend Emily Henderson up in Whangārei, because there is an opportunity for work, etc., there. So that’s the kind of potential I can see in this legislation. I can see it doing good things, and I can see the actual obligation to consult with the other parties being part of, really, that entrenchment of this as an independent thing, as a good thing to do, but not necessarily something that we should have as a party political point.

So, yes, I’m absolutely mindful. This would be the guardians being able to make those decisions, not with my choice—I couldn’t necessarily lobby for a dry dock—not with Mr Woodhouse’s choice; he couldn’t lobby for a hospital, but, actually, they will make rules and they will apply them and they will make good investments in this country. So I support this legislation going to the select committee.

Tēnā koe, Madam Speaker. I rise on behalf of the Greens to offer our support on the first reading of the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill. I’d like to start off by acknowledging that I think everyone in this House is interested in our senior citizens having a safety net. We may have differences about what that looks like and what people can access it, whether it is their retirement age or even residency settings, but the super fund is one of the mechanisms in which we, at the moment, have to maintain the sustainability of that safety net.

What this bill is aiming to do is, effectively, make changes so that the Superannuation Fund can take a controlling interest in an entity, and I note that speakers were talking about how the fund has matured and may be ready to do this. I also wanted to acknowledge previous comments around how this fund and decisions regarding this fund operate separate to the politicians. I’ve noted that it’s been described, on one hand, as apolitical, but I much prefer the sentiments by the previous speakers who spoke more about the separation of politicians and the decisions around the fund. Because everything is political and we can’t pretend, actually, that the guardians don’t have any sort of politics and are devoid of any ideology when it comes to making these decisions. So I would prefer for us to actually speak truth to the reality that you can’t actually be apolitical in how you act.

These changes to the Superannuation Fund do represent an opportunity to require the guardians, through legislation, to undertake more ethical investment practices. The Greens have been really clear that we have had historic concerns about the unethical nature of some of these investments, and the fact that, right now, they are not strong enough. Rather than just relying on behaviour, we should legislate to ensure that we can both protect that safety net and contribute to economic progress, while not investing in things like fossil fuels and other emissions-intensive, environmentally or socially harmful investments.

We would, ideally, be keen to ensure that there is a requirement that a portion of these funds be targeted towards social-impact investments, including emissions reductions—which would actually more broadly align with the Government’s goal of net zero carbon emissions by 2050. So we do think that there are improvements that we could be making and we do think that the process of this bill could enable for a rich discussion of how we do this.

I just, finally, would like to note that, ultimately, there is that broader conversation to be had about what kind of tax system we want to have that enables for enough revenue to be raised so that we’re also not just relying on this fund to continue having that safety net for our ageing population. So we look forward to conversations at a select committee stage and further debates regarding this bill. Kia ora.

Thank you, Madam Speaker. I rise on behalf of the ACT Party to oppose, at first reading, the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill. However, I do look forward to seeing this bill go through select committee, where it will be challenged by my colleague Damien Smith, who sits on the Finance and Expenditure Committee.

While the ACT Party was in consultation with the Minister of Finance about this particular bill, we wrote back to the Minister to suggest that, in principle, we were not opposed to the fund taking controlling interests in investments and in stocks, because it’s obviously a new level of sophistication that the Superannuation Fund has managed to mature and reach, and in doing so, a public entity will need additional oversight. So it’s important that the law is changed and it’s scrutinised heavily, in doing so, to allow for the maturity of the Superannuation Fund.

But where the ACT Party differs and why we won’t be supporting this bill—even though in principle we agree with the changes set out in it—is because we don’t believe that the Superannuation Fund should be contributing to investments in New Zealand or internationally. Essentially, what the Government is doing by continuing to invest is taking New Zealand taxpayers’ money and making a decision about what to do with it and investing on behalf of New Zealanders. Well, in the ACT Party, we believe that the best decision-making for investment can happen by taxpayers themselves rather than by their Government. And I think the perfect example was made by my Green Party colleague Ricardo Menéndez March standing before and saying, “Well, if we are going to invest in the Superannuation Fund, these are the types of investments we would like to see.”

So if you start to believe that the New Zealand taxpayers should have the Government spending their money to invest in the stock market, you then raise the question of, well, what is a sensible investment? And you start to get a lot of people having their own political ideas of what a good investment would be. I believe the New Zealand taxpayer knows what sort of investments they believe will be best for themselves. And so that’s why we believe that we would like to see capital markets in New Zealand grow. That means having a good regulatory system that enables people to be able to make those decisions for themselves and to have the confidence to invest in New Zealand’s capital markets. And this is not the correct debate for it, but I am very interested in how we can change our regulatory systems to enable more New Zealanders to further invest in our New Zealand capital markets, especially a lot of younger people. You know, the next generation are investing—

💬 Angela Roberts: Sharesies.

—like my colleague across the House, Angela Roberts, says, in Sharesies. There are a number of other platforms. But we could particularly look at the technology side of these investments in online applications to ensure that younger people coming through have the knowledge and also have the ability with custodian rights under our New Zealand capital markets to make the best decisions and be actively involved in the sharemarkets.

But we do not believe that we should be, as taxpayers, pooling our money through the Government to have this money used for investments. So we do not believe in continuing the contributions to the New Zealand Superannuation Fund. But we do believe in paying down debt. You know, this Government spends an awful lot of money on wasteful spending. The Government wastes our money. There’s a lot that we could cut back on. But it’s also very important that we pay down our debts so the next generation are not facing ongoing taxes and increased taxes down the line. I think it’s very important that we keep our spending under check, that we stop the contributions to the Superannuation Fund, that we pay down our debts, and that we also remove wasteful spending where we can see it. That will keep costs of living under control. But it doesn’t make sense to take New Zealand’s taxpayer money and spend it on a bet. We’re betting other people’s money, and that money could be used better by New Zealanders themselves to invest where they think they can make a good decision, rather than where the Government thinks it can make a decision.

So we are not supporting this bill. We are, in principle, supporting the idea of changing the controlling-interests part of the Superannuation Fund and allowing for more accountability through the changes to these laws, and we look forward to working through that at the select committee, but we are opposed to the New Zealand Superannuation Fund, and we believe it would be better for the Government to be paying down its debts rather than borrowing and spending and using New Zealanders’ taxpayer money on the stock market.

Thank you, Madam Speaker. Can I just open this afternoon, albeit at the end of the week, just to acknowledge Tama Potaka in the House, a tuakana of mine and part of the ever-increasing representation of ngā iwi roa o [the confederated tribes of] Mōkai Pātea in Parliament. So, mihi atu ki a koe, te tuakana.

I’m pleased to speak on the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill this afternoon. This bill further strengthens Labour’s commitment to the New Zealand Superannuation Fund to ensure the sustainability of the New Zealand superannuation scheme into the future. We’ve heard that this bill will allow the Superannuation Fund to take a controlling interest in an entity by amending section 59 of the Act to do so; that’s in Part 1. So the fund can now take a controlling interest in a business or investment vehicle if the fund’s guardians wish to do so.

This bill strengthens the New Zealand Superannuation Fund to ensure the sustainability of the New Zealand superannuation scheme into the future. It’s a sensible change that would allow the fund to access a wider base of investment partners and opportunities, particularly from Aotearoa New Zealand.

The fund is mature now, of course, more than two decades on, with assets approaching $60 billion. It’s quite a legacy from the late Sir Michael Cullen and the fifth Labour Government. It is a sovereign wealth fund and this change doesn’t affect sovereignty, not for the fund and not for the Government. The bill does not affect the guardians’ independence from the political influence in relation to investment decisions, and the fund can maintain its exclusion list.

A reminder of some of the areas that the fund does not invest in: companies in the tobacco industry; companies involved in the production of nuclear weapons, cluster munitions, and anti-personnel mines; companies involved in the processing of whale meat; companies involved in the manufacture of civilian automatic and semi-automatic firearms.

Part 2 of the bill makes consequential amendments to the Ombudsmen Act so that the Act and Official Information Act do not apply to any private sector subsidiaries in which the guardians may hold a controlling interest, while preserving those Acts’ application to the guardians itself, and the Income Tax Act, to address the removal of references to the fund’s investment, vehicles, and to preserve the current tax treatment of the New Zealand Superannuation Fund investments. Allowing the New Zealand Superannuation Fund to hold controlling interests will have a limited impact on competition with other market investors.

As part of the Finance and Expenditure Committee, I think in the discussions that we have heard in the debating chamber this afternoon, it is important to offer the opportunity to the public and to key stakeholders to have their input into this bill, but as we know and as we’ve heard from the majority of the House, we do support this bill, we do support the progress of the New Zealand Superannuation Fund, and I commend this bill to the House.

This is a split call—five minutes.

Talofa and kia orana koutou katoatoa. E te tuakana, Shanan, e mihi ana ki a koe. Thank you for the opportunity to speak to this bill. The Minister is at the intergenerational edge of responsible investment, and the purpose of the New Zealand Superannuation Fund is aspirational and pragmatic—sustainable investment delivering strong returns for all New Zealanders. Kia toitū te haumi hei hua mā ngā tāngata katoa o Aotearoa. [Let the investment be sustainable to provide for all people in New Zealand.]

The purpose of the bill, to allow the New Zealand Superannuation Fund to take a controlling interest in an entity, matches many of the murmurings of Friday night kombucha and sushi sessions I enjoyed as a minor staffer at the Guardians of New Zealand Superannuation Fund.

The National Party gives tautoko to this amendment, albeit at the first reading, and as my learned colleagues Willis and Woodhouse observed, there is some caution associated with this support. Political pressure and the risk of lobbying from other portfolio Ministers is real over time, particularly those with scale infrastructure responsibilities that have some poor yield and other return characteristics, and it could become more pronounced through the proposed pathway, so transparency around inter-ministerial communications is required.

Raiding of the MallowPuff jar should not be encouraged—using the Superannuation Fund as merely trigger capital for pet projects or life-saver capital for failed projects. Whilst spending quality time as a seeker, à la Harry Potter and the golden snitches at the Guardians of the New Zealand Superannuation Fund in the Zurich building in downtown Auckland, I had the phenomenal opportunity to meet some exemplary and sometimes quirky people. It is the likes of Matt Whineray, who now leads the Guardians of New Zealand Superannuation Fund, that this amendment eloquently—very eloquently—speaks to.

Look, the risk of bailout expectations is an important concern that we’ve referred to and alluded to, particularly on reputational grounds. From my own experience in observing the Superannuation Fund over time, it is acutely aware of those responsibilities of preserving the international and the domestic reputation of the Guardians of the New Zealand Superannuation Fund across the investor landscape, but I implore all members to be cautious around this and also demonstrate an ultimate curiosity for the potential that the New Zealand Superannuation Fund brings to our direct investment landscape, and that, as my role as a curator of deals that didn’t exist, was particularly a focus of mine.

I’m mindful also of the legendary Minister of Finance Bill English and his ministerial directive to the guardians many years ago—when I was a young man in Tāmaki-makau-rau—to identify and consider opportunities to increase the allocation of New Zealand assets in the fund, but not to be inconsistent with the duty, that important fundamental duty of the guardians, to invest in a prudent and commercial manner.

Those parameters, as articulated so brilliantly by the former Prime Minister Bill English as the Minister of Finance at the time, continue to be extant in our environment today. Those New Zealand opportunities will likely expand if this type of amendment carries through to the other side, and I would have thoroughly enjoyed—in my time at the Guardians of the New Zealand Superannuation Fund—the opportunity to interrogate and understand the Dunedin Hospital investment. That would have been absolutely marvellous and I could have attended Dunedin far more often, running up Baldwin Street and enjoying the cooler weather of Dunedin.

Madam Speaker, my rumblings are exhausted here; my murmurings are over. However, let’s cautiously proceed so that the select committees can see the sunlight and not get caught in the verbal shadows. Tēnā tātou katoa.

Thank you, Madam Speaker. I’m enjoying the tone of this debate, the references to Baldwin Street, Dunedin Hospital, and, of course, the Superannuation Fund. It is good to debate with members and I look forward to hearing around the House how different parties approach this. It’s good to see the tentative support from across the House, at least to the select committee stage.

I am very confident that the concern expressed by members opposite around independence is covered off in this bill quite explicitly, and appropriately so. It is incredibly important that this fund acts independently, that it is independent from political influence, and when that’s laid down in statute, it becomes incredibly clear and sacrosanct. So the bill itself does not alter the guardians’ independence from political influence in relation to investment decisions. I just think that needs to be stated clearly and on record. That’s provided for in section 64(2) of the Act, for any members that want to check that up.

Now, it’s very much a story of then and now that we’re looking at today. When the fund was established in 2001, the rationale for the control restriction was that the fund’s purpose was to get exposure to investments and not to own businesses for itself. And, of course, it has been very successful in that regard. It has won numerous international awards, and one only has to go and visit the guardians’ website to see the lists of awards that it’s won, including a lot of global recognition for outstripping the performance of other sovereign wealth funds around the world. It’s done extraordinarily well.

But when it was established, it hadn’t, of course, established that track record of performance. That only came over time as it invested, did so successfully, and demonstrated its ability to do that year after year. It’s also true that the environment’s changed. When the fund was established originally, it was very uncommon for sovereign wealth funds to take a direct controlling interest in investments. But that’s changed—the practice around that has changed. And, of course, as the fund itself has matured in size, in capacity, it’s grown, it’s shown itself to be a very prudent investor, has got those returns that will ensure New Zealand’s future superannuation is provided for as was intended, and has done that, I think, in a way that has outstripped all expectations, and we need to acknowledge that in this House.

Interestingly, Michael Woodhouse brought this up earlier in the debate, anticipating that it would be spoken about—the very fact that National in 2009 suspended payments to this fund. On the guardians’ website, they have done the calculation of how much bigger this fund would have been had the National Party invested through their time as Labour Governments had, and the fund itself would be $28.6 billion larger if the National Party had continued to make contributions, such is the extraordinary return that they’ve made.

💬 Rachel Boyack: How much?

$28.6 billion larger had the National Party continued to contribute. But that’s the kind of thing that makes them nervous.

And we heard it from ACT over there, who were very much of a view that we shouldn’t be investing on behalf of New Zealanders; we should be only investing as individuals, despite all evidence to the contrary in terms of the value of the investment and the returns that have been achieved. I think, certainly in the ACT Party’s case, we can see that that’s just ideological claptrap—don’t let the facts get in the way of a good story!

But I am pleased to see National tentatively supporting this. I encourage them to support it right the way through, because it is a policy that benefits all New Zealanders and it is a good thing when a bill like this gets support across the House. We want that long-term investment. We want our citizens to benefit from the provisions that are made and from the extraordinary returns that the Superannuation Fund has secured over the years and, I’m confident, will continue to secure in the future.

There are a couple of other points to make before I close. The beauty of having a controlling stake in organisations such as is proposed in this bill is that the fund will have more flexibility, thus giving it the propensity to have even greater returns and also to influence ESG factors as well in their reporting—they can influence environmental, social, and governance things that are in the wider national interest too, and that would be terrific to see. There are many more reasons to support this bill, but my time is up.

Thank you, Madam Speaker. It is a pleasure to rise and—I’m not going to turn this into an economics lesson, I promise—speak in support of the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill. Actually, maybe it is an economics lesson, because I’ve been listening to the debate and I was really heartened as somebody who, hopefully, is around long enough to take advantage of the wise investment decisions made by the guardians in years to come.

I was really pleased to hear about the curiosity and engagement across the House as we recognise the maturity of the guardians and their governance capability, and how we can best enable the opportunities that arise from that as well as mitigating any potential risks. As we’ve heard earlier, we believe that both sides of that coin are very much addressed in this legislation.

I was heartened, and then I was gobsmacked to hear that the ACT Party not only want to stop contributions—which will cost, potentially, billions and billions of dollars—but actually they quite clearly state that they oppose the existence of the New Zealand Superannuation Fund, and just “Good luck, everybody.” I think it speaks volumes about their commitment, or lack of, to looking after the way we do our social contracts with each other in order to look after each other in our retirement. So I’m very proud to be able to speak in support of this legislation, because we believe, on this side of the House—and, I believe, on the other side of the House—that this is a really, really important part of our social fabric and how we look after each other.

We’ve heard about the why, now. As Treasury has noted, the guardians’ governance has evolved in line with the super fund investment capability over the years to provide effective oversight of really complex investment strategies, and that’s been recognised recently in an independent review done by Willis Towers Watson. So we’re really, really clear about the why. Things are very, very different from when the Superannuation Fund was established and the guardians first set off on their journey to do what they do—as we see now—quite, quite well.

This expansion—so why? This expansion of their tool kit enables a lot of opportunities. Their value proposition is quite unique. Their endowments, long-term investment horizon—which does open up different opportunities—their ability to tolerate a liquidity crunch, and the fund’s sovereign status means that their opportunities are much greater, and this bill will enable those opportunities to be taken. I look forward to seeing it progress to select committee.

Well, thank you very much, Mr Speaker. An absolute pleasure to rise to speak on the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill first reading. We’ve heard a range of comments this afternoon in regards to this bill, and I’m going to spend a little bit of time outlining a few of the areas that we’ve observed will need to be explored as this progresses through the select committee process. As our shadow finance spokesperson and deputy leader, Nicola Willis, has articulated, National are supporting this bill cautiously through to select committee. That is for a variety of reasons that we will canvas as we go through.

There was one reference from a prior speaker that did rise my eyebrows, and that was that “one can’t be apolitical in regards to the management of investments”. How timely that comment is—quite an insight into the context that, actually, it’s impossible for someone to be apolitical. Well, we’ll just leave that for Kiwis to have a think about whether they believe that or not.

In regards to this legislation, it’s quite interesting in terms of that fact that we’ll need to provide the ability for the New Zealand Superannuation Fund to be able to take a controlling interest in regards to investments. This is a long-term investment fund—primarily, in the nature; in terms of its investments, it’s passive. The reality of what we’re looking at here is for the Superannuation Fund to be able to take primarily more active fund investments and controlling interests, which basically means that they have the power and the ability to influence that and decisions through that.

I think the question and the issue that this particularly raises is in regards to having a clear governance situation. What I mean by that is that one of the challenges—and I’m sure that this will be thought through in the select committee phase—is how do we ensure that the impartiality that is implied in regards to investments where the Superannuation Fund does have a controlling interest, because that impartiality is one of the key pillars of good, strong corporate governance. One of the concerns, rightly so, by Kiwis is that when the Crown has the ability to have a controlling influence, then impartiality is very much a real risk and real issue.

Some of the considerations around how to mitigate that—whether that is through having no management roles on the entities in which the Superannuation Fund invest in, having no management influence, or even going to the point where the Superannuation Fund ensures there are independent board members that are in there or actually an independent majority on the board. I think all of those considerations around governance separation do need to be considered through this, and I’m confident the select committee, through feedback from experts and across the sector, will take into account some of those key components.

Because it is important, and political influence is real. I mean, if you give a scenario of, say, the Superannuation Fund was looking at undertaking an offshore wind farm investment, for example, and the Minister for the Environment came along and said, “Well, you know, I really want this to tick a couple of boxes on my priorities and promises.”—I mean, hypothetical, of course, but you can see where the element of political influence may drive a decision. And the prior speaker over there referred to it before. He said, “Don’t worry, it’s in the legislation that there needs to be prudent commercial basis.” Well, the challenge with the word “commercial”, when you’ve got 100 percent Crown ownership, is there’s a little bit of a contradiction between those two points, you see.

The point that, actually, the Crown is commercial is a long bow—it’s a long bow to draw. So prudent commercial basis when the Crown has a 100 percent stake is where there is an issue, and I think the select committee needs to work through that and ensure that we have confidence that those safeguards that have been highlighted by the other side of the House actually in reality will result in ensuring that that impartiality is maintained in terms of clear separation between the investment vehicle, which is a New Zealand Superannuation Fund, and the management and the board that actually executes the strategic direction of the company in which the Superannuation Fund will hold a controlling interest.

I think the other aspect which is interesting is if you look at significant sovereign wealth funds globally, it is right that many of those globally have the ability to take controlling interests within investments. The legislation that surrounds a number of those sovereign wealth funds is different, and I think part of the job of the select committee is going to be undertaking a bit of a scan globally and internationally in terms of the safeguards around the same type of funds in other jurisdictions to ensure that we’ve got the right, I guess, riverbanks in place to avoid the boat getting grounded. But that is important because having the right controls in place there is going to mitigate a lot of the risk.

The point around what you’re seeing with these sovereign wealth funds is quite a significant flow in terms of the ratio of investments that are under active investment. So that’s basically those that have fund managers that are making more active day-to-day decision-making in terms of those investments versus those that are passive. And you’re seeing very much a flow from active to passive. So while this aspect is looking more at the active side of that, there is a bit of an element and it’s probably not drawing too far out of piece to say that, actually, there is a potential for a little bit of distraction within the Superannuation Fund—that shiny investment, that shiny business over there; let’s get involved and let’s invest in that, and let’s chase that car for a while, when, actually, the reality of this sovereign wealth fund is it is a long-term passive fund and it takes a minimum of a 30-year investment horizon.

So we don’t want the fund to get distracted by the shiny car driving past and chase that, because we know already, as was highlighted when the Superannuation Fund came to the select committee, that they paid out about $16.2 million of performance bonuses last year when the fund dropped in value by 7 percent. Don’t get me wrong, performance bonuses for high performance are appropriate in a commercial environment, but when you pay every single one of your staff members—100 percent of the staff got a bonus for performance when the fund went backwards by 7 percent, and it actually went from $16.2 million, and the prior year was $9.4 million, and the average between the last four years was $26.4 million and $9.4 million. It went from $9.4 million to $16 million in one year and the CEO got a 40 percent pay rise in 12 months. Maybe I’m the only one that’s thinking, “Well, we just need to be a little bit cautious in terms of giving these guys a little bit more rope.”, because what that indicates to me is when you give them rope, they are quite willing to use that in a way in which it derives benefits. So I think that’s just a little bit of context that adds to that conversation.

The other aspect in the time that we’ve got—gee, there’s not much time to go, Mr Speaker. Maybe we have a little bit longer, but maybe we’re not going back to the second reading today. The other aspect that we want to—I think it was raised by the Hon Michael Woodhouse, who raised a good point. It was in terms of having a look at this in the context of ACC—because ACC, of course, is our other investment fund, with a long-term investment horizon. And I would expect that the select committee will also look at other similar legislations. That will be the Crown Entities Act 2004, section 100, for those that are reading the legislation at home while they’re watching the speech. But let’s see where the select committee goes. And, as I say, we’ll be cautiously supporting this legislation.

It gives me pleasure to be the final speaker for the Government in support of this very important bill, the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill. In my short contribution, we have heard from across the House support for this bill at the first reading, and we’ve also heard from our Minister of Finance, who has outlined this New Zealand Superannuation Fund (NZSF), and the New Zealand Superannuation Fund has significantly matured in size and capability in the operating model. What this bill does, is Part 1 of the bill amends section 59 of the New Zealand Superannuation and Retirement Income Act 2001 to allow the Guardians of the New Zealand Superannuation Fund to take a controlling interest in an entity.

The bill also makes a number of other amendments to ensure that an investment by the fund does not result in any entity being treated as part of the Crown and subject to obligations that were designed for public-sector organisations. In Part 2, it also makes consequential amendments to the Ombudsmen Act so that the Act and the Official Information Act do not apply to any private-sector subsidiaries in which the guardians may hold a controlling interest, while preserving those Acts’ application to the guardians itself and the Income Tax Act to address the removal of references to fund investment vehicles and to preserve the current tax treatment of the NZSF investments.

And we’ve heard that the guardians’ governance—who have been entrusted with this role, who are skilled individuals with business acumen, and who are independent of the Government and politicians—have followed due diligence in the operations.

Now, just to end off, I am not a member of the Finance and Expenditure Committee, but I have every confidence that the members will initiate a transparent process in terms of hearing from the public and in terms of the submissions that are put forward, and they will be able to hear the recommendations by the different contributions to carry out the work, because we want good returns for the long-term investments for New Zealanders with this fund. On that note, I commend this bill to the House.

The question is, That the New Zealand Superannuation and Retirement Income (Controlling Interests) Amendment Bill be considered by the Finance and Expenditure Committee.

Motion agreed to.

Bill referred to the Finance and Expenditure Committee.