Former Liberal treasurer Peter Costello has suggested a new nationally administered “safety net” fund be created to manage Australian workers’ default superannuation payments.
Addressing a superannuation conference in Melbourne, Mr Costello, who is chairman of Australia’s sovereign wealth fund, the Future Fund, said the move could save Australians’ hip pockets.
Mr Costello said since most Australian workers do not bother to choose a super fund, they instead end up lumped into a default scheme and miss out on vital earnings.
“Instead of the government arbitrating between industry funds and private funds, there is a fair argument that compulsory payments, the so-called default payments, should be allocated to a national safety net administrator,” he said.
“Default contributions are at the moment spread between many funds, allocated to many different products, many of whom use the same manager and all of whom pay fees to do so.”
Former Treasury economist Warren Hogan said the pitch to centralise default payment allocation of Australians’ roughly $600 billion of super is a strong one.
“I think you could argue the Future Fund, of which of course Mr Costello is very familiar, is run efficiently and effectively, then you would save those people a lot of money,” Mr Hogan said.
“You’re talking hundreds of millions of dollars, if not billions, in any given 10-year period.”
Given the new agency would be not-for-profit, superannuates would pay less fees, and — given the Future Fund’s current return of over 8 per cent — accrue more money.
“There is some real merit to this, and obviously the Productivity Commission is looking closely at it,” Mr Hogan said.
“This is just for the money that is what you could almost say is lazy money — money that just defaults into a fund and people aren’t really managing it actively or looking at it closely.
“This does represent a significant threat though, because that would be a major, major proportion of super money that would be taken out of these existing manager and put into this government fund.”
‘Very dangerous’ to invest so much in one fund
But private sector fund managers warn Mr Costello’s idea is far too risky to put so much of Australians’ super into one fund.
Shane Oliver, the head of investment strategy at AMP Capital, which manages more than $100 billion in super, said the government is no better placed than a private fund.
“I have no doubt that the Future Fund has done a fantastic job, but just bear in mind that most fund managers think they can do a fantastic job as well,” Mr Oliver said.
“And I think it’s very dangerous just to put all money into one fund. I think the current arrangement is actually quite a sensible one.
“The defaults aren’t as simple as they used to be but many fund managers are offering funds targeted at people by their age group.”
Finance Minister Mathias Cormann sidestepped the issue earlier today while speaking on Sky News.
“I’m not commenting on what Peter Costello has put forward,” Mr Cormann said.
“We are of course focusing on making sure the system is on the best possible foundation for the future.”