Retirement fund on Covid-19 roller-coaster

Wednesday May 13, 2020 Written by Published in Economy
Damien Beddoes. Damien Beddoes.

Finance Minister rules out borrowing money from super fund to pay for Covid-19 economic recovery package.

The national super fund made a whopping $18 million net return on investment last year – but a big chunk of that was lost again as the Covid-19 pandemic hit world markets.

Damien Beddoes, chief executive of Cook Islands National Superannuation Fund, said in 2019 they recorded the largest return to members since the fund’s inception, with the growth fund declaring an 18.1 per cent return to members.

The returns came to $17.96 million net gain on all investment activities, after costs.

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The super fund’s balanced and conservative funds declared 14.4 per cent and 9.3 per cent respectively.

The Fund also recorded $17.3 million in contributions from the employees and employers in 2019. The total returns and contributions see the Fund’s portfolio surging to $188 million at the end of last year, he said.

Beddoes said the recovery in 2019 was astounding – but he warned of uncertainty on returns on investment this year due to “once-in-a-generation global health emergency of Covid-19”.

The Fund is already recording negative returns this year with projections it could hit all-time lows if the global economy fails to recover in 2020.

Its performance as at March 31, 2020 show negative returns on the conservative (-6.66 per cent), balanced (-9.78 per cent) and growth (-11.87 per cent) funds.

“Almost every country is experiencing lock-downs effectively shuttering the global economy. Unemployment levels are rising steeply while many sectors of the economy are currently inactive,” Beddoes said.

“The impact of this on investment markets has been severe and there remains significant uncertainty as to the path forward.

“A lot will depend on the economic responses and the race to confirm a vaccine. If the vaccine comes through sooner rather than later, then markets are expected to recover further,” he said.

“We just don’t expect them to recover to the height of last year.”

Cook Islands workers expressed trepidation at the decline in their savings.

Rachel Scheel, aged 19, is contributing to the National Super Fund through her employer, the National Environment Service.

Rachel Scheel. 20051211

“Coming from someone who is young, they’re very important,” she said. “I don’t want to be working into my late years. My parents, they don’t have retirement funds, and I don’t want to be like them. I want to be there to support them, and me at the same time.

“It’s swings and roundabouts. I think the National Super Fund is more trustworthy than other places. It’s better than putting the money under my mattress.”

Jaibheem, an expat worker, said most of his savings were back home in India. “I don’t know how much money they are making. “Saving is very important.”

Anna Lorraine Bulawin, a hospitality worker, said she had savings here in the National Super Fund, and back home in Philippines where her two children live.

She said the fund’s decline was “sad”, but she accepted that funds would rise and fall over the years.  “It worries me because we are hoping for that money to claim our dream when we retire,” she said. “But I’m not thinking too much about it, there are other things to be stressed about.”

The Fund recorded one of its lowest returns in 2018, triggered by the United States Federal Reserve tightening, trade wars, the uncertainty in relations between the US and China, Italy’s budget stand-off with the European Commission and Brexit.

Beddoes said: “We know we will see record declines in economic activity in the coming months, and volatility in markets will likely remain high, but in the face of these unprecedented events, governments and central banks have been incredibly proactive in taking steps they believe will provide support.”

Many countries are now starting to move towards relaxing lockdown restrictions and Beddoes hopes this may bring the potential to generate a rebound in economic growth.

“While there are undoubtedly significant challenges ahead there are reasons for optimism. We have seen this in share markets which have rallied sharply since their late March lows, as investors turn their focus to how the world will look once the immediate health emergency is over.”

Deputy Prime Minister Mark Brown said the super fund investments should not be viewed for just one particular year but over a long-term period of many years. 

“The purpose of the Fund is to invest people’s contributions to attain the best returns without too much risk exposure.”

With government looking for more funds to successfully implement the next phase of the economic response package, Brown confirmed they had no intentions of borrowing money from the fund.

“Whilst the Cook Islands National Superannuation Fund is looking to maximise returns for its investments, the government is looking to borrow at the lowest rates it can. Our financial objectives do not align.”

The superfund had 12,008 members as of December, 2019 but there has been a spate in new membership due to government’s stimulus package.

It invests in some big international and New Zealand brands such as Microsoft, Apple, Samsung, Spark and Fisher & Paykel.

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