The federal government is proposing the introduction of a state-run superannuation fund, but experts say it will lead to political pork-barrelling and negative outcomes for retirement balances.
Industry Super Australia (ISA) has issued a stark warning in a report that claims the federal government is proposing to use its $200 billion Future Fund as the default option when new employees don’t nominate a particular fund.
ISA says the plan would effectively allow the fund to be used as a “slush fund” for political projects and, in turn, harm the retirement savings of ordinary Australians.
“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,” says ISA chief executive Bernie Dean.
“Workers’ savings would become a slush fund for pork-barrelling by politicians chasing votes rather than investment returns.”
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Modelling from the Nationalising Super: Why politicians should keep their hands off your retirement savings report claims that a “30-year-old worker in such a government-run fund would pay exorbitant fees, earn lower investment returns and end up $126,000 worse off at retirement compared with being in a top-performing industry fund.”
But supporters of the government-run super plan argue that fees would actually be lower than the various government MySuper products. They say the Future Fund plan would allow for the elimination of duplicate fees.
The plan isn’t new. It was floated by the federal LNP back in 2018 and is again in the spotlight after Liberal Senator Andrew Bragg released a discussion paper that makes the case for the Future Fund to become the national default super fund.
But it’s not just industry funds that don’t support the government plan. The Association of Superannuation Funds of Australia (AFSA), which represents both retail and industry funds, has called the plan an “illiberal idea” that will lead to further market monopolisation and, therefore, lower returns.
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“This illiberal idea is inconsistent with the recently announced House of Representatives inquiry into concentration and common ownership in the Australian share market and would exacerbate the very issues which are the apparent cause of concern for this inquiry,” AFSA CEO Dr Martin Fahy says.
“Putting the precious retirement savings of Australian workers into a nationalised entity raises the spectre that down the road we could see the fund raided for pet projects and political interference in its investment decisions.
“Defaulting people into a government-controlled superannuation fund will lead to the moral hazard of superannuants expecting the government to underwrite their retirement outcomes and pick up the bill for any underperformance or losses in the long term.”
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The plan is at odds with the record investment returns of Australian super funds in the past 12 months, with some commentators noting it appears to be related more to the federal government’s desire to curb the political and social influence of industry super funds.
It might be politically motivated, but will it be politically popular? The YourLifeChoices Older Australians Insights Survey 2021 revealed that just over 45 per cent of Australian retirees have their money in an industry super fund.
Would you support the creation of a government-run super fund? Do you think it would be efficiently and effectively managed? Let us know in the comments section below.
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