Former Howard-era treasurer Peter Costello has called for the nationalisation of Australia’s default superannuation system, saying it would be more efficient and end the war between industry and retail super funds.
Speaking in Melbourne to a superannuation managers conference, Mr Costello, who also chairs the Future Fund, manager of government superannuation liabilities, made the surprising comments. He said of the almost $600 billion default fund sector, “we are dealing with the money of people who make no active choice about where they want their money to go or how it should be invested”.
Default funds, which receive contributions from people who don’t actively choose their own super fund, cover a significant amount of the money in the industry fund sector in particular. They are often selected through industrial awards, a system the Productivity Commission is reviewing at the moment after the government proposed changes.
“This is my personal view: instead of the government arbitrating between industry funds and private funds … there is a fair argument that this compulsory payment should be allocated to a national safety net administrator – let us call it the Super Guarantee Agency – a not-for-profit agency, which could then either set up [on] its own, or contract it out. The Future Fund Management Agency could do it.”
There would be “huge economies of scale” in such a plan, Mr Costello said.
“It would end the fight between the Industry and the profit sector. Neither sector has been able to attract the money voluntarily. The government has decided it should go into the super system. It could show some interest in managing it in a cost efficient way.”
Mr Costello cited the example of Canada where a government owned fund manages $C317 billion ($A325 billion).
“It has economies of scale. It is extremely active in Australia. It would be one of the most respected investors in the world.”
However, David Whiteley, CEO of Industry Super Australia, said the current default system, predominately managed by not-for-profit industry funds, “provides an adequate safety net that serves only members interests”.
Putting all super into one government owned and managed system would “take away competitive tension” from fund managers who currently compete for funds, he said.
A national super manager would also mean “you would be putting all the political risk for the performance of super with the government and that may well lead to it taking all the market risk as well”, Mr Whiteley said.
The danger there would be that if super underperformed the tax payer would effectively be liable to make up the difference, he said.
Dr Martin Fahy, CEO of the Association of Superannuation Funds of Australia, which represents all super funds, said the idea was “almost inconceivable”.
“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,” Dr Fahy said.
“What is being proposed is in essence the nationalisation of private, individual superannuation savings.”
“First and foremost, the Government is focussed on protecting members’ money and members’ interests by ensuring there are the highest standards of transparency and accountability in all funds, with a strong prudential regulator, APRA,” said Revenue and Financial services Minister Kelly O’Dwyer.
“Peter Costello’s remarks highlighted some of the fundamental structural problems within the compulsory superannuation system.The Government …has tasked the Productivity Commission to undertake an inquiry into these issues,” she said
About two-thirds of superannuation fund members are members of default funds and fewer than 5 per cent of members actively switch funds, the Productivity Commission has found.