Australia will delay tapping its $130 billion Future Fund, the world's seventh-largest sovereign fund, for at least six years to ensure it has sufficient assets to cover mounting public service pension liabilities, a newspaper said on Saturday. Federal Treasurer Scott Morrison will extend the maturity date for drawing down on the fund from July 1, 2020, to at least 2026, The Australian said.
By doing so, the fund would generate sufficient assets to cover unfunded superannuation liabilities for federal public servants, who enjoy generous defined benefit pension schemes that guarantee as much as 80 per cent of their final salary for life. According to The Australian, public service pension liabilities under the schemes, which have been closed to new members, will peak in 2049-50 at $20 billion. Liabilities are not expected to expire until 2100.
Morrison told the newspaper it made no sense to draw down on the Future Fund while it was earning 7 per cent per annum when governments could borrow to pay the pensions at 2.8 per cent. "Ten or 15 years down the track, the unfunded super-liability problem would still be there," he was quoted as saying. "We want the Future Fund to be able to do the job for which it was set up."
He also said the additional debt would be incurred at a time when the economy was returning to surplus and net debt was in decline. The Future Fund is Australia's biggest investor. The move to delay drawing down on the fund, which The Australian said would be a centerpiece of the federal budget due to be released on Tuesday, would force the government to use further borrowings over the medium term to fund state pension payouts.
Former Treasurer Peter Costello told the newspaper that delaying the draw-down could see total assets rise to $300 billion by 2030 and lift the taxpayers' burden permanently. "It will cover the cost of all unfunded liabilities and save the budget tens of billion of dollars a year," he said. The government is expected to reveal a faster narrowing of the yawning deficit next week in a federal budget that will also seek to appease the electorate over rising housing unaffordability. Keeping a tight leash on expenses and encouraged by an unexpected late windfall from higher commodity prices, the government is targeting a surplus by 2021 amid lingering concerns about Australia's prized triple-A credit rating.