Several government ministers including Treasurer Josh Frydenberg, Minister for Jobs and Industrial Relations Kelly O’Dwyer and Assistant Treasurer Stuart Robert thought a public default fund option had merit and was worth exploring, sources said.
But behind the scenes, Finance Minister Mathias Cormann, who has sided with the financial services industry on past policy fights such as resisting banning commissions for financial advice, pushed back strongly against his colleagues and lobbied Mr Morrison not to “nationalise” superannuation.
The government will instead press Labor on how it would implement the Hayne royal commission’s recommendation that a person should have a single default super account that is “stapled” to them for their working career.
“The Labor Party received Commissioner Hayne’s final report on the Monday and, more than one week later, they still only ‘agree in principle’ with its recommendations,” Mr Frydenberg said.
Contrary to the Productivity Commission’s recommendations, Labor and trade unions want to keep the default superannuation market within the industrial relations system, ostensibly so industry funds continue receiving a mandated inflow of money to build their financial and political power.
The Future Fund on Mondayrevealed a healthy 5.8 per cent return in 2018and significantly outperformed industry and retail superannuation funds due to it taking less risk amid global market volatility.
Mr Costello said on Monday it “did not aspire” to directly manage people’s super, but the Future Fund could give investment-management advice such as asset allocation to a potential new public default super fund.
Australia’s longest-serving treasurer, Mr Costello founded the Future Fund in 2006 to help allow for pension liabilities of public servants.
Mr Costello is also chairman of Nine, owner ofThe Australian Financial Review.
Mr Morrison last month said he was aware of a proposal for Future Fund involvement in super, but “it is not government policy”. That view appears to have firmed in recent weeks.
The deliberations within the government are a rerun of a similar private debate early last year. Senator Cormann helped the Turnbull cabinet block a push by then superannuation minister Ms O’Dwyer before last May’s federal budget for the government to pay about $3 million for a business case to evaluate the sovereign wealth fund being opened up to manage people’s super.
TheFinancial Reviewrevealed last month thatsenior federal government ministers were again considering giving the Future Fund a role in superannuationfollowing damning revelations about the financial services industry by the Hayne royal commission and Productivity Commission report into efficiency and competition in super.
Potential for a top 10
The Productivity Commission has said a government-owned fund should not be precluded as an option that new workers could be nudged towards on a “best in show” shortlist of 10 top-performing funds, chosen by an expert panel appointed by financial regulators.
That could include existing government-owned funds like the Commonwealth Superannuation Corporation, which manages almost $50 billion in super for federal public servants and Defence Force personnel, or state-based schemes such as the Queensland government’s QSuper.
The commission rejected a government “monopoly” fund that all workers would be automatically defaulted into if they didn’t choose a fund. The PC said the biggest risk of all default contributions being allocated to a government-owned fund was that in the event of poor performance, there could be significant political pressure on the government to “top up” returns for members, and taxpayers could be put at risk.
Shadow treasurer Chris Bowen has accused the Coalition government of wanting to undermine non-profit union- and employer-aligned industry funds, which receive massive fund inflows, following damning revelations about underperformance and high fees charged by for-profit retail funds.
Industry superannuation funds areon track to overtake SMSFs to become the dominant playersin the retirement savings system within the next two years and are poised to top $1 trillion by 2024, according to financial consultancy Rice Warner.
Liberals are worried the weight of money shifting to industry funds will provide unions – and by extension the Labor Party – with board seats, economic power and money.
The Swedish example
Mr Costello on Monday said a government default fund would not prevent people having “choice” in super.
“In other countries, of course, the money does go to public or government default funds. So that’s an idea I’ve put forward. I don’t know whether the government will find it attractive or not,” he said.
Sweden set up a government-owned default scheme in 1999 for individuals who did not choose a fund. Initially about 70 per cent of new savers joined the fund, but by 2011 nearly all new savers defaulted into it.
Mr Costello in 2017expressed public support for the government playing a more active rolein managing superannuation in a more cost-efficient way than industry and retail funds.
“This is my personal view: instead of the government arbitrating between industry funds and private funds, there is a fair argument that compulsory payments, the so-called default payments, should be allocated to a national safety net administrator, let’s call it the Super Guarantee Agency,”he said in October 2017.
“It would be a not-for-profit agency which would set up its own investment board like the Canadian pension plan,” he said, arguing there would be “huge economies of scale” in the new agency.