Retired public servants are much more of a burden on the public purse now than they will be in the coming decades, the Intergenerational Report says.
As of the middle of last year, Australia had an unfunded superannuation liability for civilian and military employees of $155 billion, or just under 10 per cent of GDP, but this figure was set to be slashed to less than 2 per cent of GDP within 40 years.
This is because the Future Fund will carry all of the Commonwealth superannuation liabilities by 2020 and public service super schemes, which were expensive and unfunded, have now been closed to new entrants.
Almost all of the unfunded public service super liability came from the defined Commonwealth Superannuation Scheme, Public Sector Superannuation Scheme and Defence Force Retirement and Death Benefits Scheme which were now all closed to new entrants.
The Military Superannuation and Benefits Scheme, also a significant financial burden, will be shut to fresh entrants within 18 months.
Since 2005, the federal government has ensured superannuation entitlements were funded as they accrued and this will start happening for the military from mid-2016.
"In the medium to long term, this will considerably reduce future unfunded accruals," the report said.
"In the shorter term, existing contributory members of the closed schemes will continue to accrue unfunded benefits and the unfunded liability is projected to continue to grow in nominal value."
The Future Fund was established by the Australian government in 2006 to assist future governments in funding the cost of the superannuation liabilities of the Commonwealth public sector.
From 2020 the Commonwealth's superannuation payments will be financed by drawing down on assets in the Future Fund rather than from general revenue.
The Future Fund had assets of $101 billion as at June 30, 2014, and generated a return of 13.9 per cent in 2013-14.
"Projections in this report suggest that assets will peak in the late 2020s at around $165 billion, contributing earnings of $7 billion a year to the Australian government's cash position," the report said.
"As a result of drawdowns made from the fund from 2020, the balance is projected to be depleted by around the late-2040s, during which time the fund is projected to have funded around $400 billion of Commonwealth superannuation payments.
"These are payments that would otherwise have to be funded from general government revenue and borrowings."