The following link has significant details on the Future Fund……..
……..however the following paragraphs note the current proposed withdrawal of funds to begin in 2026 – 2027
However, in 2017 the Government announced it would not make withdrawals from the Fund in 2020 and indicated its inclination to allow the Fund to grow until at least 2026-27. Drawing down later on the Fund is projected to strengthen the Government’s financial position over the long term.
The Commonwealth’s unfunded liabilities are currently being paid out of consolidated revenue. By helping to meet these liabilities, the Future Fund will ease pressure on the Government’s budget at a time when an ageing population is likely to place significant pressure on its finances.
Further information regarding the Future Fund is also available on the Department of Finance website.
Future Fund Update
ACPSRO Update dated October 2021
A Background to ACPSRO’s position on the Future Fund and Unfunded Liability Appraisals
- ACPSRO has always closely monitored the Future Fund (FF) on performance.
- Its concept was established in 2006 by Peter Costello, the then Federal Treasurer; the purpose is to meet the Unfunded Liability (UL) of Comsuper and Military superannuants from 2020.
- The FF value at 31 March 2021 was $179B; it will have improved since.
- The FF has performed extremely well, returning 9.1 % pa over the last 10 years. Previously, prior to COVID, it had returned 10 % pa.
- Nevertheless the Government Authority, the Department of Finance (Finance), on advice from the Future Fund Agency, decided in 2018/19 that the FF should not be used until 2027.
- ACPSRO did an early appraisal on the basis of the past accepted Long Term Bond Rate use of 6 % for the discount rate used for determining the UL, as indeed utilised by Finance’s own Designated Actuary, Mercer.
- A Kehoe newspaper article in the AFR (29/4/19) (see link below) alerted us to the fact that Finance had decided to adopt the then prevailing short term bond rate (generally adopting 1.7/1.9 %) for the discount rate; this virtually doubled the UL to $ 417 B.
- ACPSRO felt that as UL was to be financed, if ever, by the FF, its performance return (Target Return is 6.1 %) is the most appropriate discount rate to adopt for determining the UL and the ability for the FF to take over funding the UL.
- It would appear that Finance does not intend to use the FF, but continue to fund the Commonwealth Superannuation Corporation (including Military superannuation) from the Budget.
- This makes sense as the Government can borrow, via Bonds, at about 1 % pa, while the FF can return some 10 % pa. (The RBA by printing money (QE) and buying bonds effectively lowers the effective cost).
- ACPSRO has determined that if the FF can achieve a return of about 7 %, virtually the FF Target Return, then it can fund the UL anytime.
- ACPSRO and its former member, SCOA, has always sought better indexation than CPI to maintain a consistent standard of living in retirement (specifically the Age Pension indexation method). The Government could afford a fair indexation payout from the FF.
- The latest reference to UL is in BP3 2019-20 Chapter 8, Page 294, but it is not clear what the current UL is, but it is based on the last review in 2018. With retirees living longer, new superannuants receiving higher benefits and existing contributors receiving higher salaries, it can be expected that the UL is now some $500B, based on Finance’s use of a low discount Rate (1-7/1.9 %).
The following documents also provide a historical and present day perspective:
- ACPSRO Mercer’s Approach in 2018 to setting the FF Target Asset Level versus Dept of Finance 2019 calculation of the APS Unfunded Liability.
- Kehoe AFR in AFR on Future Fund props up budget surpluses
- Report-on-Future-Fund-and-Unfunded-Liability by Geoff Henkel and Tom Hayes – 2019