‘Let’s be frank’
Shadow treasurer Chris Bowen said the Productivity Commission’s report published last week was “persuasive” in identifying fiscal risks from a new government-mandated fund.
“Let’s be frank, if this was Labor proposing a new government monopoly we’d be accused of socialism and of a crazy and risky government intervention,” Mr Bowen said.
“This is just the next phase of the Liberal Party’s ideological war on not-for-profit super funds. The same Liberal Party MPs were pushing the wares of bank retail funds before the banking royal commission are now pushing for a new government-owned mandated fund.”
Con Michalakis, chief investment officer of South Australia’s $8 billion industry fund, Statewide Super, said the median growth industry fund had typically delivered better returns than the Future Fund, based on what he said was the fairest “like for like” comparison.
Making the Future Fund the default superannuation choice makes complete sense, and would be an incredibly welcome move to simplify the superannuation system https://t.co/yKcypuZH5m
— Tim Wilson MP (@TimWilsonMP) January 11, 2019
“No contest, industry funds outperformed the Future Fund over one, three, five and seven years,” Mr Michalakis said.
“The Future Fund was slightly ahead on 10 years because they were funded with a lot of cash coming into the GFC [global financial crisis].”
The median industry growth fund delivered annual returns of 12.73 per cent over one year (versus 10.7 per cent for the FF), 11.92 over three years (FF 8.1 per cent), 10.72 per cent over five years (FF 10.2 per cent), 12.25 per cent over seven years (FF 10.7 per cent) and 8.82 per cent over 10 years (FF 9.2 per cent), to September 30 2018, before stock markets plunged.
Mr Michalakis used the median performance of the growth pension option in not-for profit industry funds, based on Super Ratings data. This pension option is typically pre-tax, consistent with the Future Fund not paying tax, he said.
The targeted returns of a growth fund (rather than more conservative balanced option), was broadly in line with the Future Fund’s investment return target of 4-5 per cent above inflation.
‘Best in show’
The independent Productivity Commission said a government-owned fund should not be precluded from being on its proposed “best in show” top 10 default funds, a recommendation that has caught the interest of Treasurer Josh Frydenberg, according to sources.
The commission rejected a government “monopoly” fund that all workers would be automatically defaulted into if they didn’t choose a fund, along the lines of what Mr Costello and Cabinet Minister Kelly O’Dwyer have backed.
Mr Costello is chairman of Nine, publisher of The Australian Financial Review.
IFM Investors chief executive Brett Himbury, which is owned by 27 pension funds, said the Future Fund had done a “great job” outperforming its return target.
“But there are a lot of other funds that have also done tremendous work in outperforming,” Mr Himbury said.
“Nationalisation of any industry through one government-run entity is not necessarily in consumers’ interests. If the Future Fund was to be considered it would be good to continue to have choice underpinned by the Fair Work Commission.”
Jason Prowd, head of Morningstar Next which provides ready-made investment portfolios for investors, said on social media it was “good to see this idea getting a run” and suggested the Future Fund could be an option among other funds, not the sole default monopoly.
“Can retain choice for those who want it but vastly improve default behaviour,” he wrote.
The Future Fund has delivered an annual average return of 7.9 per cent since inception in May 2006.