Using the Future Fund as a default super fund is not the answer
NSW Liberal senator Andrew Bragg last month renewed calls for the Future Fund to become the default super fund for all Australians, which would provide workers with access to high returns and some of the best investment talent. Yet new research from Rainmaker Information, publisher of Money magazine, shows that could be a "fool's errand".
Founded in 2006 and boasting $200 billion in assets under management, the Future Fund is the country's wealth fund.
While its ostensive purpose is to help fund the whole of future Australia, its real purpose is to fund the future superannuation liabilities of Commonwealth public servants, forecast to be $428 billion by 2050.
But comparing the Future Fund to a regular future fund is apples and oranges: it doesn't pay tax, has no fund members, and isn't constrained by the same laws and regulations.
"Directly comparing the Future Fund's investment returns to those of regular super funds is a fool's errand," says Alex Dunnin, executive director of research and compliance at Rainmaker Information.
"Nevertheless, the Future Fund's 22.2% annual return for 2020-21 was a remarkable result. But Australia's super fund sector also achieved remarkable results, delivering the best returns in 34 years."
While this return is exceptional, it would by no means put it on the top of the superannuation leader board.
In fact, it would place it 10th. The top MySuper product this year was CBA's Essential Super, achieving an amazing return of 26.5%.
If the Future Fund's performance was then corrected for the tax paid by other super funds, this relative performance would drop further still.
It would also likely charge extremely high fees to members.
"For one of Australia's leading investment groups and biggest fund managers, with so much scale on its side, to have such high costs is perplexing," says Dunnin.
"There's only a few MySuper products in Australia with fees so high. And let's not forget that running a super fund equivalent of the Future Fund would come with even higher costs due to having to administer fund members, comply with the superannuation laws and act as a regulated fund."
Rainmaker estimates that if the government was to establish and run a national default MySuper product, based on the Future Fund's current costs and the member fees charged by the Commonwealth Superannuation Corporation, it would likely charge 1.3% per annum in annual fees.
"Fees this high mean the Future Fund Management Agency, the public sector agency that runs the Future Fund, would most likely create a bespoke indexed investment solution. This would probably be assembled on indexed exchange traded funds with very low investment fees," says Dunnin.
All told, a Future Fund dressed up as a MySuper product would probably perform as well, and cost as much, as to make the debate mute.
He says that "as a MySuper product where all the investments are indexed, its performance ranking would slip to around the middle of the pack".
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