Future Fund as super fund could leave retirees $124,850 worse off

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Making the Future Fund a superannuation fund, as the Government may be considering, could leave retirees $124,850 worse off at retirement.

Analysis released by Industry Super Australia, conducted by former Treasury official Phil Gallagher, finds that comparable industry funds outperformed the Future Fund 11.76% compared to 10.7% on average for the 7 years to 30 September 2018. This comparison period was chosen to eliminate a “distortion” in the asset mix of the Future Fund in its early years.

Over a lifetime of accumulating super this could leave members savings their super in the Future Fund with $124,850 less than had they been in an industry fund.

Industry Super Australia (ISA) has released the analysis at a time when there is speculation the Government is considering making the Future Fund a public offer super fund.

ISA chief executive Bernie Dean said the analysis showed the Future Fund was “not a viable option” for super savings.

“We need to find ways of connecting workers with quality super funds, not find new ways for them to end up with less in their accounts,” he said.

“The extent of the loss calculated under the Future Fund scenario suggests ideology is blinding some to the best ways to put members’ interests first”.

The Productivity Commission recently released a report which recommended changes to how default super funds are selected. The recommendation – involving a ‘best in show’ list, selected by a panel, being shown to new employees – was criticised by the Labor party, industry fund and retail funds.

“The Productivity Commission has ignored the evidence and recommended a flawed scheme, and, now, people are suggesting we consign workers to an underperforming government-run fund,” said Dean.

The Government has yet to respond to the Productivity Commission report – it is waiting for the final report of the Banking Royal Commission. But one option being floated is making the Future Fund a default fund, which wasn’t a recommendation of the Productivity Commission, in part to offset industry super funds.

Former Minister for Revenue and Financial Services Kelly O’Dwyer has asked why all Australians shouldn’t be able to access the fund management expertise of the Future Fund. Though, reportedly, Cabinet twice rejected the option in 2018.

The analysis released by Industry Super Australia notes the difficulties in comparing the Future Fund with super funds – including that the Future Fund has no members (it’s meant to pay the pension obligations of public servants), had no contributions coming in, no regular benefit payments out, and pays no tax on its investment earnings. These factors contribute to “significantly fewer costs than a super fund”.

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