Former treasurer Peter Costello has called for what would amount to the nationalisation of compulsory default superannuation, saying if it was run by the government there would be no war between industry and private funds over who should run it.
Addressing a conference of superannuation managers in Melbourne, the former Coalition treasurer and current chair of the government's Future Fund stressed he was speaking in a private capacity.
"Let me say I believe that, subject to safeguards, people should be able to choose who manages their super," Mr Costello told the conference on the future of superannuation.
"But the reality is in Australia there is a large cohort of people who don't choose. Their money goes into default funds. They get allocated to an industry or an employer fund. They make no choice over the investment profile.
"Now I am not pointing the finger at anybody, because you've got to remember that I was in government for nearly 12 years, so if you want to point the finger, you can point it at me.
"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. It would be a not-for-profit agency which would set up its own investment board like the Canadian Pension Plan. We would call it the SCIA, the Super Guarantee Investment Arm.
"It could contract out the management, or the Future Fund Management Agency could do it.
"The Fund is not out there touting to be the default fund, it can't be. It was set up to invest government surpluses; it invests only one class of money, which is government money, and it doesn't [invest] private accounts."
But the former Treasurer said that didn't mean the government itself shouldn't run default super, an idea he knew the Productivity Commission was examining.
"There would be huge economies of scale. It would end the fight between the funds that have been unable to attract the money voluntarily," he told the audience of fund managers.
"The government decided to go into superannuation. The government should show an interest in managing it.
"Default contributions are at the moment spread between many funds, allocated to many different products, many of whom use the same manager and all of whom pay fees to do so. Those fees could be reduced if that money was pooled; if there was only one default fund making large allocations and using market power to drive down costs."
Canada' Pension Plan is funded with compulsory contributions of 9.9 per cent (half from employers and half from employees) close to Australia's 9.5 per cent and has become one of the world's most respected investors, taking an active interest in Australian infrastructure.
Unlike Australian funds, Canada's fund didn't feel constrained to invest in the big banks.
"There would not be another western country where the stock exchange is so dominated by financials, and in particular by the big banks," Mr Costello said. This is the 'quadropoly' as I have previously described it."
Almost every fund in Australia owned shares in the big four banks.
"I do not think this is healthy," Mr Costello said. "I have no doubt it is of enormous advantage to the banks. They never have to fear the flight of Australian investors.
"You can see why an air of impregnability and complacency has seeped into the management of the banks. Market discipline is negligible, and their returns on equity are hardly matched anywhere in the world.
"Compulsory superannuation has created an industry and delivered benefits for the young and ambitious and talented Australians work in it.
"But that's not really why it exists. It exists for those who are forfeiting their wages month-in, month-out on the expectation that 10 or 20 or 30 or 40 years of saving will get them benefits to enjoy in their retirement. As the system matures we have a very long way to go to make sure we deliver them those benefits."