Future Fund

The Future Fund was established 3 April 2006 by the Future Fund Act 2006 (Future Fund Act). The Future Fund is a financial asset fund, set up to strengthen the Commonwealth's long-term financial position by making provision for unfunded superannuation liabilities that will become payable during a period when an ageing population is likely to place significant pressure on the Commonwealth's finances.

Legislation

The Future Fund Act gives effect to the following:

  • Establishment of Government bodies: the Future Fund Board of Guardians (Future Fund Board); and the Future Fund Management Agency (Agency):
    • the Future Fund Board is accountable to the Government for the safekeeping and performance of the Australian Government Investment Funds; and
    • the Agency supports the Future Fund Board in performing operational activities associated with funds’ investments.
  • Investment Mandate: the responsible Ministers are required to issue an Investment Mandate (detailed below).
  • Crediting amounts to the Future Fund: the responsible Ministers make credits to the Future Fund, so long as the additional amounts do not result in the balance of the Fund exceeding the Target Asset Level (detailed below). For information on the credits, refer to the Investment Performance and Financials.
  • Debiting amounts from the Future Fund: the responsible Ministers can debit (drawdown) from the Future Fund in accordance with the purposes of the Future Fund Act:
    • to discharge unfunded Commonwealth superannuation liabilities once the balance of the Future Fund is greater than or equal to the Target Asset Level, or from 1 July 2020, whichever is earlier; or,
    • meet expenses associated with the investment function and administration of the Future Fund.

Investment mandate

The responsible ministers provided the Future Fund Board with strategic investment guidance through a written direction in respect to the Future Fund. This is a legislative instrument that is not subject to disallowance.

The Future Fund Investment Mandate Direction 2017 requires that the Future Fund Board adopt a benchmark average return for the Future Fund of “at least the Consumer Price Index (CPI) +4.0 to +5.0 per cent per annum over the long term”. In striving for this benchmark return, the Future Fund Board may pursue an acceptable, but not excessive, level of risk.

Target Asset Level

The Target Asset Level is the best estimate of the Future Fund balance that would be required to offset the present value of projected unfunded superannuation liabilities, accrued up to the same point in time.

The Future Fund Act provides that a comparison of the Future Fund's balance with the Target Asset Level is required when considering whether to:

  • drawdown from the Future Fund to meet government superannuation benefit payments prior to 1 July 2020; or
  • credit amounts to the Future Fund.

Prior to 1 July 2020, if the balance of the Future Fund was greater than or equal to the Target Asset Level for the relevant financial year, then withdrawals can be made. However, if the balance is lower than the Target Asset Level amounts cannot be withdrawn from the Future Fund. From 1 July 2020, withdrawals from the Future Fund to meet unfunded superannuation liabilities do not need to take account of the Target Asset Level.

The latest Target Asset Level Declaration of 6 July 2018 specifies and explains the target asset levels for the 2017-18 to 2019-20 financial years:

The Target Asset Level for the Future Fund is set by the Designated Actuary, who must take all reasonable steps to ensure that there is a target asset level in place for a financial year and that not more than five target asset levels for different financial years are in place at the same time. The current determination is below:

Investment performance and financials

The Future Fund Board of Guardians (Future Fund Board) publicly discloses the Future Fund's asset allocation and investment returns in its quarterly portfolio updates.

Financials since inception to 30 September 2019

(Equals) Cash Balance 165,733

 

$ 'millions1

Total Credits 60,537
(Plus) Net Earnings2 105,196
(Equals) Total Credits and Earnings 165,733
(Less) Debits (Withdrawals)3 0

Notes:
1) Data may not sum due to rounding.
2) Earnings are net of investment and administration fees incurred by the Future Fund Board.
3) This amount represents debits made for policy purposes under the relevant Act.

Refer to the following link for information on the Budget treatment of Future Fund earnings and costs.

Quarterly performance result to 30 September 2019

For the quarter ending on 30 September 2019

Nominal Return
(Per cent per annum)

Benchmark Rate1 
(Per cent per annum)

One year return to date 11.3 5.6
Annualised return since inception2 8.1 6.7

Notes:
1) The quoted benchmark rate of return follows the relevant investment mandate direction.
2) Annualised return since inception on 5 May 2006, when the Fund received its initial credit.

Annual performance results

Financial year

Nominal Returns
(Per cent per annum)

Benchmark Rate1 
(Per cent per annum)

Cash Balance as at 30 June
($ 'millions)

2005-062 6.0 8.5 18,163
2006-07 7.4 6.6 52,320
2007-08 1.5 9.0 64,181
2008-09 -5.1 6.0 61,040
2009-10 10.3 7.6 67,346
2010-113 12.0 8.1 75,393
2011-12 2.1 5.7 77,012
2012-13 15.4 6.9 88,889
2013-14 14.3 7.2 101,590
2014-15 15.4 6.0 117,222
2015-16 4.8 5.5 122,792
2016-17 8.7 6.4 133,458
2017-18 9.3 6.1 145,837
2018-19 11.5 5.6 162,621

Notes:
1) The quoted benchmark rate of return follows the relevant investment mandate direction.
2) Annualised figure as first contribution was made on 5 May 2006.
3) Nominal returns to 2010-11 are inclusive of Telstra holdings.

Transfers (Credits) to the Future Fund

The following table provides a history of financial transfers to the Future Fund, with links to the associated determinations.

Total Transfers 
60,537

 

Summary of Transfers

Date
Source of Funds
Amount 
($A m)
Documentation
5 May 2006 Initial Seed Capital 18,000 Future Fund (Crediting of initial Amount) Determination and Explanatory Statement 2006  (Explanatory Statement )
22 January 2007 2005-06 Budget Surplus and first instalment of Telstra 3 sale proceeds 18,639 Future Fund (Crediting of Additional Amounts) Determination and Explanatory Statement 2006  (Explanatory Statement )
16 February 2007 The remainder of the 2005-06 Budget Surplus 3,638 Future Fund (Crediting of Additional Amounts) Determination and Explanatory Statement 2007  (Explanatory Statement )
28 February 2007 2,104,657,933 Telstra shares 8,966

PDF version:
Future Fund (Balance Day – Telstra Shareholding) Determination 2007 (Explanatory Statement 

Transfer of Telstra shares amount to the Future Fund 

Word version:
Future Fund (Balance Day – Telstra Shareholding) Determination 2007 (Explanatory Statement 

Transfer of Telstra shares amount to the Future Fund 

22 June 2007 Telstra 3 sale proceeds (prepayments of the second instalment received in the period February to April 2007) 151 Future Fund (Crediting of Additional Amounts) Determination and Explanatory Statement 2007 (No. 2)  (Explanatory Statement )
28 June 2007 21,894,459 Telstra shares 102*

PDF version:
Future Fund (Balance Day – Telstra Shareholding) Declaration 2007 (No. 2)  (Explanatory Statement 

Transfer of Telstra shares amount to the Future Fund

Word version:
Future Fund (Balance Day – Telstra Shareholding) Declaration 2007 (No. 2)(Explanatory Statement

Transfer of Telstra shares amount to the Future Fund 

24 August 2007 2006-07 Budget Surplus 7,000 Future Fund (Crediting of Additional Amounts) Determination 2007 (No. 3)   (Explanatory Statement)
25 June 2008 Telstra 3 sale proceeds (second instalment receipts) 3,900 Future Fund (Crediting of Additional Amounts) Determination and Explanatory Statement 2008  (Explanatory Statement )
21 November 2008 35,361,956 Telstra shares 141*

PDF version:
Future Fund (Balance day – Telstra shareholding) Declaration 2008  (Explanatory Statement 

Explanation of the transfer of Telstra shares to the Future Fund

Word version:
Future Fund (Balance day – Telstra shareholding) Declaration 2008  (Explanatory Statement 

Explanation of the transfer of Telstra shares to the Future Fund 

Note: *Telstra shares are valued as at the time of transfer.

Drawdown (debits) from the Future Fund

Drawdown from the Future Fund to pay superannuation benefits may only occur once the balance of the Future Fund is greater than or equal to the Target Asset Level, or from 1 July 2020, whichever is earlier. Expenses associated with the investment and administration of the Future Fund may be drawn from the Future Fund through its existence.

There has been no drawdown from the Future Fund as at 31 March 2019.

Budget treatment of Future Fund earnings and costs

The Future Fund's gross earnings were excluded from the underlying cash balance from its establishment in 2006 until 2012-13. Gross earnings were excluded on the basis that Future Fund earnings, while accounted for as Government receipts, were not available for recurrent spending but were instead quarantined and reinvested to meet the Government’s unfunded superannuation liabilities. 

While the Future Fund’s gross earnings were excluded from the underlying cash balance, its operational costs were included in the underlying cash balance. 

In the 2012-13 Budget, the Government announced a review of the budget treatment of the Future Fund regarding the issue of whether net earnings should be excluded from the calculation of the underlying cash balance. The review questioned whether both Future Fund’s earnings and costs should be excluded from the underlying cash balance. Previously gross earnings only had been excluded.

Following consultation with stakeholders, the Government announced in the 2012-13 Mid-Year Economic and Fiscal Outlook that the Future Fund’s net earnings would be excluded from the calculation of the underlying cash balance. This was considered appropriate as the Fund’s earnings are required to be reinvested to meet future superannuation payments, and the Future Fund is required to meet all of its operating costs from its earnings. This means Future Fund earnings and costs are treated consistently in the calculation of the underlying cash balance.

As a result of this change in budget treatment, the historical series for the Australian Government fiscal aggregates was revised to account for Future Fund net earnings in the underlying cash balance.

A summary of the outcomes of the review conducted in 2012-13 is available at Budget Treatment of Future Fund Costs in the Australian Government Budget and Financial Documents.

From 1 July 2020, the net earnings of the Future Fund will be included in the underlying cash balance regardless of whether drawdowns to meet unfunded superannuation liabilities have commenced at that time. 

Responsible ministers and nominated minister

The Future Fund Act 2006 designates the Minister for Finance and the Treasurer as the “responsible ministers”.  The responsible ministers have the joint power, inter alia, to:

  • credit cash amounts to the Future Fund through a Special Account and to transfer financial assets to the Fund;
  • appoint and remove members from the Future Fund Board of Guardians;
  • issue the Future Fund Investment Mandate.

The Act further requires that one of the responsible ministers be appointed as the “nominated minister”. The purpose of assigning a nominated minister is to streamline and simplify processes relating to some of the responsible ministers’ duties.

The Future Fund (Nominated Minister) Determination 2006 appoints the Minister for Finance as the nominated minister.

Future Fund Board of Guardians

Future Fund Board of Guardians

Future Fund Act 2006 and related documents

Future Fund Act 2006

The Future Fund Act 2006 commenced on 3 April 2006. It gives effect to the establishment and governance of the Future Fund.  The Act also:

Future Fund Ministerial Direction 2007 (Escrow Direction)

The Future Fund Ministerial Direction 2007 provides that the Board must not dispose of any Telstra shares during the period from and including the date that the Telstra 3 Instalment Receipts are first listed on the Australian Stock Exchange to and including the date two years after that date. The Future Fund Ministerial Direction 2007 also provides for some limited exceptions to the two year lock-up period.

February 2007

Future Fund Management Agency

Future Fund Management Agency

For more information, refer to the Future Fund website.


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