Future Fund a model for superannuation?

A super fund run with the same principles, skills and power as Australia’s Future Fund would be a winner.

Future Fund chairman Peter Costello. Pic: David Geraghty

Any Australian could soon have their super looked after by the Future Fund: It’s a splendid idea put forward today by the Productivity Commission as part of a plan to reform the excesses in the super system which allow individuals to have multiple accounts.

Under the terms of the plan called “assisted employee choice”, Australians would be encouraged to choose their own super fund — rather than their employer.

A choice would be made from a list of ten top funds with a “default” option of a fund “provided by the Future Fund”.

What’s more, once you “default” into a fund you would be able to stay with it … even when you change employers.

Since it was launched for public servants over a decade ago the Future Fund has vastly outperformed the rest of the industry, it is in many ways what most workers want — a reliable, tightly regulated, strongly performing super fund that is big enough to stand above and beyond the market.

The Productivity Commission is to make its final report in August. However, its paper on alternative default models, which offers four new possible super “choice” arrangements — including the fee-assisted choice arrangement — signals to all players in the current super system the era of easy money might be over.

And it has been easy. Because your employer should — by law — pay 9.5 per cent of your salary into super an enormous overlapping, wasteful industry has emerged.

There are no less than 270 super funds across Australia with a frightening multiplicity of choice and performance. No wonder many people simply make no choice but “default” into a fund for chosen for them.

But this “choice” creates an unexpected problem — more than 40 per cent of all workers have multiple super accounts. Moreover, with estimates that new generation workers could have 17 jobs over their lifetime this problem is going to get worse unless there is reform.

Put simply, having more than one account dilutes your long-term returns.

And that’s just the start of it. Multiple accounts means multiple snouts at the trough when it comes to fees — your various super accounts are paying the salaries of multiple players in the industry whether they are union-linked industry funds or free market retail funds.

It also means you may have multiple insurances — you may very well be over-insured and paying unnecessary fees to several insurers.

Among the possible new “default systems” proposed by the Productivity Commission are a version where the employer still picks your super, a version where there is a tender process for winners and the “assisted employee choice” model.

An “assisted employee choice” model where you can choose your own super and stay with that fund will be hard to beat.

Offering the Future Fund — or a fund run by it on the same principles with the same skills and power in the global market — would be an outright winner.