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Funds push back against ‘nationalised super’ proposal

By Fergus Halliday
3 minute read

The super sector isn’t buying the idea of a government-run fund.

Industry Super Australia has come swinging against a proposal that could see a government-run super fund become the default option for Australian workers.

Under the scheme, new entrants to the workforce would be entered by default into the government-run fund unless they opted to join a specific retail or industry fund.

However, Industry Super Australia (ISA) chief executive Bernie Dean warned that the plan would funnel millions of Australian workers into an expensive and poorly performing super fund.

While the existing defaults system has room to improve, the ISA said that it is largely working-as-intended.

According to the industry body, default products are currently the strongest and best-performing part of Australia’s super system, and that the addition of a government-run fund risks to the equation could introduce new vulnerabilities to the superannuation system.

“We’ve got some of the best performing funds in the world, so news that they’re planning to nationalise super is just crazy and won’t do anything to improve people’s trust in politicians,” Mr Dean said.

A report prepared by the ISA pointed to the performance of similar government-run funds overseas as evidence that undermined the argument of advocates that the scheme would leave Australians with reduced fees, higher returns and fewer conflicts of interest.

In reality, “Workers’ savings would become a slush fund for pork-barrelling by politicians chasing votes rather than investment returns,” Mr Dean warned.

Admitting that the Future Fund has performed well, the ISA noted that it does not have members, pays no taxes and has comparatively high investment costs. In addition, they warned that translating the Future Fund’s success into the super sector isn’t something that can happen overnight.

“Transforming it into a government-owned default super fund would require substantial changes and create considerable risk, with unclear and uncertain gains,” the report said.

According to the organisation’s own modelling, a 30-year worker enrolled in a government-run super fund would likely pay higher fees for lower returns, ending up $126,000 worse off over the long run.

“If the Treasurer wants to nationalise super, he’ll need to explain to millions of Australians why he shoehorned them into a dud fund that could leave them $126,000 worse off at retirement,” Mr Dean said.

This isn’t the first time the notion of a government-run super fund has come up.

Back in 2019, the proposal was slammed by several prominent members of the federal government, with then-Finance minister Mathias Cormann insisting that it was not government policy for the Future Fund to manage default superannuation.

However, earlier this year, the notion of the Future Fund expanding into the super sector was revived by Senator Andrew Bragg.

“The Future Fund provides high returns and lower costs for consumers, benefiting not only members of the fund but all Australians by creating a competitive benchmark for the entire sector,” Mr Bragg argued.