MPs comments raise concerns

One of the biggest concerns over the Government's proposed multi-billion superannuation fund is that it will be a tempting target for politicians to either raid or invest in their pet projects.

The board will develop and execute the investment strategy on a basis that is consistent with best portfolio management techniques and in a way that seeks to maximise returns without undue risk.

The World Bank, which favours prefunding of state pensions as opposed to funding them on a pay-as-you-go basis, says the investment strategy is vitally important to the success of a fund. Its research shows that prefunding schemes that are subject to political interference or are used to achieve objectives other than paying pensions run into trouble.

Consequently comments made by the chairman of the Finance and Expenditure Select Committee, Mark Peck, have raised some concerns.

He says the finance minister can't direct the board over how it should make investment decisions.

"Because the board will be independent from the Crown, it will be required to have regard to rather than give effect to directions from the government," speech notes prepared for the recent BIIA Managed Funds conference say.

"There is therefore limited capability for the government of the day to make directions and those that are given must not be contradictory to the fund's prudent commercial investment rule."

He notes that any directions will be transparent as the minister must present a copy to Parliament.

However, when questioned about what would happen if the board ignored directions from the minister he provided a different answer.

Peck says the board would be "foolish" if they didn't follow the minister's directions.

"I think it would foolish of them to do that because the minister's opinion is shaped by public opinion."

Guardian Trust Funds Management managing director Anthony Quirk, who spoke after Peck, says his comments raised some concerns "that the minister does know best."

"It's an issue in terms of political interference going forward," he says.