Peter Costello: A fund for the future

The establishment of the Commonwealth’s Future Fund, along with the ongoing implementation of the Government’s Retirement Incomes Policy, has earned Federal Treasurer Peter Costello a place on this year’s list of people who have most influenced the financial services industry.

In launching the fund this year, Costello made a first step towards addressing the growing problem of unfunded liabilities for Commonwealth public servants’ superannuation, which currently stands at $91 billion and will reach $140 billion by 2020.

The plan is for the fund to operate independently, managed by a specially established statutory authority, the Future Fund Management Agency, which will cost the Government $32 million over four years to set up.

The Future Fund Management Agency will then oversee the allocation of funds to various managers, on a tender basis, for investment.

Seed funding of $16 million has been allocated to the fund, to be topped up with future Budget surpluses, plus the proceeds from the sale of Telstra.

In addition to resolving the long-term problem of funding government employee pensions, the sheer size of the fund will create mandate opportunities for fund managers locally and overseas.

Anticipation over the opportunities the fund could create, however, have been tempered by warnings from asset consultants that such a significant inflow of funds in such a comparatively short period of time could distort Australian asset markets unless a large proportion of the fund is invested offshore.

Political influence over the way the funds are invested was also a concern early in the year, with pressure from some lobby groups to concentrate the fund’s investment on infrastructure projects or the rural economy. So far, the fund does not appear to have succumbed to political pressure.

Costello’s other notable impact on the financial services sector this year was his abolition of the Superannuation Surcharge, a move that heeded calls from the industry.

The Federal Government took up a majority position in the Senate on July 1 this year, effectively neutralising opponents of the policy and allowing Costello to drive through the changes aimed at simplifing the superannuation system and boosting super savings by providing incentives for individuals to make additional voluntary contributions to their superannuation.

The Association of Superannuation Funds of Australia and IFSA welcomed the move, and it was estimated that taxpayers would save in the order of $2.5 billion over the next four years as a result of the changes.