Nationalisation of superannuation would put private savings at risk

The Association of Superannuation Funds of Australia (ASFA) rejects the notion put forward by Future Fund Chairman Peter Costello, as reported in today’s The Australian, that the private superannuation savings of Australians should be diverted to a government-run investment fund and administrator.

The Australian reported that Mr Costello said the $133bn Future Fund could take on the role of national safety-net ­administrator.

ASFA CEO Dr Martin Fahy said there were significant problems with the proposals.

“In the context of the broader public debate around the efficiency and competitiveness of the superannuation system, it is almost inconceivable that anyone would countenance a government monopoly delivering the best retirement outcomes for Australians,” he said.

“What is being proposed is in essence the nationalisation of private, individual superannuation savings.

“The Future Fund effectively operates as the Australian Government’s wholesale investment manager. However, it lacks the required governance framework and administrative capabilities needed for it to operate in a superannuation context.

“Broadening the role of the Future Fund – from managing money to meet public liabilities to also managing private superannuation assets – would represent an erosion of the trustee and investment governance frameworks critical to the delivery of member returns.”

Dr Fahy said it also would increase political risk for the Future Fund and the government, and risk heightening market or member perceptions that savings are underwritten by the government.

“Given its purpose, the Future Fund does not offer vital group insurance coverage that protects Australians in times of personal crisis, nor does it have the capability to do so,” he said.

Mr Costello’s proposal would also require the government to set up and operate a centralised facility to undertake administration functions for the government-run fund. Effectively, this would see administration services for many member accounts transferred from private sector operators to a government administrator.

“Australia’s private superannuation administrators have a long track record of generating efficiency improvements and providing prudent, reliable services to members,” Dr Fahy said.

“Entrusting administration to a government-run entity would reverse significant efficiency gains delivered through the government’s SuperStream program, which sets very high standards for private administrators.”

Dr Fahy said the industry had invested $900 million to implement SuperStream over the past five years.

“This has ultimately been funded by superannuants,” he said. “Nationalisation would represent a waste of their retirement savings.

“It would also require faith that government could deliver more efficient, effective and reliable administration services than the private sector.

“The reality is that transferring administration functions to a government body would create single-point-of-failure risk for members.”

The Productivity Commission is currently consulting in relation to system efficiency and the allocation of default fund members to products.

The substance of Mr Costello’s proposal is similar to an option put forward by the Commission – a ‘last-resort fund’ for members who do not exercise choice, to be run by the Future Fund.

In its July 2017 issues paper, the Commission stated it expects to make an early call on this proposal, noting that stakeholders indicated this may not be the best way of ensuring good outcomes for employees who do not exercise choice.

ASFA is calling for the Commission to rule out this proposal given the likelihood of detrimental member impacts.

For further information, please contact:

Teresa Mullan, Media Manager, 0451 949 300.

About ASFA

ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral and non-party political, national organisation. ASFA’s mission is to continuously improve the superannuation system so people can live in retirement with increasing prosperity. We focus on the issues that affect the entire superannuation system and represent more than 90 per cent of the 14.8 million Australians with superannuation.