Costello Backs Nationalising Super

Christopher Joye

Coolabah Capital

Today I write that in 1992 Paul Keating created forced public saving via superannuation yet, in an unusual oversight for an otherwise inspired policy, offered no public super solution (click on that link to read the full column or AFR subs can click here). Excerpt only:

We have public and private health, public and private education, and even public and private infrastructure. But for some reason our politicians thought they would create the mother-of-all gravy trains for the people running super and offer no conflict-free alternative for punters who would prefer to entrust their money to the government, rather than those outside it.

The irony is that the original founder and current boss of Australia's sovereign investment agency, Peter Costello, is convinced that the Future Fund should be opened up to finally fill this gaping hole. If it is good enough to establish the Future Fund to manage public service pensions (which it has done brilliantly), why can't ordinary Australians capitalise on the same opportunity?

While it would be intellectually inconceivable that Labor would reject a proposal for a single sovereign backstop to mitigate the conflicts of interest arising from its policy of forcing all Australians to save for retirement (I called for this way back in 2009), the more interesting insight is how many seriously smart Liberals have advocated the idea. In October last year Costello argued that Australia should emulate the Canadian pension systemby providing a publicly-managed alternative to private and not-for-profit super.

The Canadian Public Pension Fund has C$356 billion in assets and is one of the most respected investors in the world. Costello declared that the Future Fund could serve in exactly in a similar role. (Contrary to some speculation, Costello remains a fervent believer in this idea.)

"There would be huge economies of scale," Costello said. "The government has decided [savers' money] should go into the super system. It could show some interest in managing it in a cost-efficient way."

It is certainly true that a large sovereign super fund would have immense pricing power to reduce fees and administration costs, which would mean superior investment returns for super savers.

Other prominent centre-right players, including Kelly O'Dwyer and commentators Terry McCrann and Judith Sloan, have likewise pushed this case. O'Dwyer in particular has canvassed the proposal in cabinet meetings, albeit before the royal commission's sensational dissection of the conflicts that have plagued the industry.

Read the full column here.

Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

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