Budget 2023: Future Fund faces $72.19bn pension shortfall as 2026 drawdown window nears

The nation’s flagship retirement scheme for public servants faces a widening unfunded gap of what will be needed to meet its superannuation liabilities as inflation drags on returns.

Australia’s flagship retirement scheme for public servants pensions faces a $72.19bn shortfall as inflation drags on returns, the federal budget has revealed.

A rising tide of inflation has punished the government’s flagship national retirement savings scheme, with the Future Fund delivering a 1.1 per cent return for the 12 months to March, putting in question drawdown plans set for 2026-27 as assets remain well short of liabilities.

The returns flop has widened the unfunded gap between the Future Fund’s assets, which are sitting at $202.8bn as at March 31, and superannuation liabilities tracking to hit $275.8bn by the end of this financial year.

The 2023 Budget papers note the Future Fund’s assets were expected to hit $217.3bn by the end of the 2023-2024 financial year, before climbing to $264.4bn by the end of the forward estimates period in 2027, when the scheme may be opened up for drawdowns.

But the Future fund will need to more than double its assets to $512.9bn by 2060 if it is to fully fund the needs of public servant retirement packages, according to the budget papers.

The budget warns the unfunded liabilities will continue to grow “as current members continue to accrue benefits prior to retirement”.

“The present value of the superannuation liability is also sensitive to changes in the discount rate,” the budget notes.

The Future Fund, which was established in 2006 under the Howard government to meet the unfunded liabilities of defined benefits pension schemes held by Commonwealth public servants, is chaired by former Federal Treasurer Peter Costello.

Former Federal Treasurer Costello with Prime Minister Anthony Albanese at the Australian Open earlier this year. Picture: Aaron Francis

The Future Fund is required to deliver a benchmark return of at least the Consumer Price Index rate of inflation, plus at least 4 to 5 per cent.

Since it was established, the Future Fund has delivered an average 7.7 per cent rate of return against a benchmark of 7 per cent.

CPI hit 6.1 per cent in the 2021-2022 financial year, with the budget forecasting this to slip to 6 per cent by the end of the 2022-23 financial year.

The rate of inflation on consumer goods is expected to fall to 3.25 per cent in the 2023-24 financial year, before further sliding to hit 2.5 per cent by the end of the forward estimates.

The Future Fund posted a 3.7 per cent loss for the 12 months to December 31.

The Future Fund was established in 2006 under the Howard government to meet the unfunded liabilities of defined benefits pension schemes held by Commonwealth public servants.

These defined benefit schemes were closed to new members between 1990 and 2005.

No drawdowns on the Future Fund are currently being made, with the pension needs of these defined benefit schemes funded out of the general budget.

The Morrison government moved in 2017 to defer drawing down on the Future Fund until at least 2026-27.

The Future Fund had originally been slated for drawdowns in July 2020, unless its balance exceeded its target asset level, amid an expectation the steadily ageing Australian population would weigh on the national budget.