Industry Super Australia has slammed renewed calls from the government for a nationalised super fund to be the default option for workers who don’t nominate a fund of their own, describing it as the product of “cabal of politicians” intent on robbing workers of their pensions.
The response comes months after Liberal senator Andrew Bragg suggested the Morrison government shift default super allocations to the government-run Future Fund in a bid to curb the political and social influence amassed by the sector since its inception in 1992, and force underperforming funds to compete.
“We spend more on super fund fees than we do on power bills, as a people,” Mr Bragg said. “There are many people that would like to abolish super, I’m not for abolishing it — I’m for fixing it,” Bragg wrote in a discussion paper published in August.
“I think this is a good and clean way to tidy up a lot of the poor performing funds.”
According to the Australian Prudential Regulation Authority (APRA), 1 million Australians were in August tied to underperforming super funds, with the Commonwealth Bank Group Super’s Accumulate Plus Balanced and Christian Super’s My Ethical Super among the worst offenders.
As it stands, the Commonwealth’s sovereign wealth fund, Future Fund, already has close to $200 billion in assets, closely trailing Australian Super, which boasts of about $230 billion.
Established in 2006, the Future Fund was originally established as a government-owned investment fund aimed at strengthening the Commonwealth’s long-term financial position in a bid to meet underfunded public servant benefit schemes.
Backers of the Future Fund superannuation plan argue that a national fund has the potential to charge lower fees than the private funds it competes with by cutting duplicated costs.
In a new report, however, Industry Super Australia claims that nationalising a default fund could instead lead to lower returns, and put Australian pensions at risk of becoming a “political plaything” invested in government projects.
“This plan would funnel millions of Australian workers into an expensive and poor performing government-controlled super fund — all so politicians can get their hands on people’s money,” Industry Super Australia CEO Bernie Dean said.
“Workers’ savings would become a slush fund for pork-barrelling by politicians chasing votes rather than investment returns.”
The report cites modelling that suggests rolling out a nationalised Future Fund to all Australians as a default as opposed to a “top performing industry MySuper product” could cost Australians up to $126,500 in additional savings.
It does however concede that the Commonwealth’s Future Fund has performed well, clocking returns of 9.9% per annum over the last five years, compared to the 9% earned by MySuper products.
The ISA argues the two funds — and their returns — aren’t comparable because Future Fund isn’t subject to the same costs and regulations as industry super funds are.
“[Future Fund] pays no taxes, has no members, and is not subject to the significant and extensive regulations that govern super funds and provide protection and transparency for stakeholders and members,” ISA said.
According to in-house modelling, ISA suggested the Future Fund, if nationalised, would have a cost structure similar to that of the Commonwealth Superannuation Corporation’s Public Sector Accumulation Plan (PSSap) — the default nominated by public servants — which charges higher fees than private funds.
The report notes that the average fee over five years for the best-performing 25% of super funds was 0.91%, compared to the 1.22% charged by the Commonwealth’s public service fund.
Based on those fees, ISA claims that the Future Fund would get members a lower return than the options currently available to them.
The group’s modelling suggested the Future Fund would offer members a five-year average return of 8.1% annually, while MySuper products would get them 9% across the board, and as high as 12% from a top-performing fund.
Bragg said the modelling isn’t likely to pan out, and that the Future Fund would outperform its MySuper counterparts.
“The Future Fund has beaten the average super fund over the long term,” he said.
“This comparison isn’t perfect because the Future Fund doesn’t get the benefit of regular contributions like the super cartel. But, equally, the Future Fund doesn’t pay tax.”