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Gauging the Future Fund's MySuper potential

As calls for the Future Fund to become Australia's default superannuation manager are renewed, Rainmaker Information has run the numbers on what that might look like.

Speculation over whether the sovereign wealth fund should be charged with managing Australians' retirement savings has mounted in recent weeks on the back of senator Andrew Bragg's recent paper on the topic.

Bragg referred to the current super industry as a "closed cartel" with high fees and low competition. He proposed the Future Fund become the default option for workers, while others looked at the fund's historic returns and made claims of it outperforming MySuper.

"The Future Fund is a professional and high performing investment fund, but to say it's the best fund in Australia is absurd," Rainmaker executive director of research Alex Dunnin said.

"Commentators need to appreciate that it operates very differently to a super fund, so head-to-head comparisons are ridiculous."

Last financial year, the Future Fund returned 22.2%. To gauge how that return would flow through to members if the fund were a government sponsored MySuper product, Rainmaker applied a general taxation rate of 6% to its performance and an assumed 0.2% annual administration fee.

The result sees that 22.2% headline return discounted by 1.53%, seeing it rank 10th among MySuper products for the year. Meanwhile, making the same adjustment to the Future Fund's raw returns would see it drop to 14th place.

Rainmaker said the results suggest the Future Fund is a "consistently impressive performer, arguably on par with Australia's leading MySuper products".

In fact, based on raw returns, over three, seven and 10-year periods the Future Fund would rank as the top performing MySuper product.

Based on its adjusted returns however, the highest it would chart is 4th over a seven-year period.

Still, Rainmaker said a national MySuper product with investments managed by the Future Fund Management Agency has the potential to be the lowest cost product in the market.

Its last annual report shows total costs of 1.13%, comprised of 0.197% direct costs ratio and 0.93% indirect look-through investment costs.

If a government sponsored MySuper option was administered by the Commonwealth Superannuation Corporation, which currently charges members $84 a year, total fees would sit at an expensive 1.30%.

However, if a bespoke indexed option was offered, comprised of ETFs with an investment fee of 0.25%, it could be the cheapest MySuper available at just 0.42% per annum.

If something like this were to occur, Dunnin said it would be a 'Kodak moment' for the super industry.

"How this product would be regulated would also be fascinating to see unfold," he said.

"For example, would it also be subject to the APRA performance test?"

Read more: Future FundMySuperRainmaker InformationAlex DunninAndrew BraggAPRACommonwealth Superannuation Corporation