The superannuation system must operate under frameworks that drive good retirement outcomes and prudent investment strategies, according to the Association of Superannuation Funds of Australia (ASFA) submission to the Financial System Inquiry, which was released today.
ASFA CEO Ms Pauline Vamos says that both the overarching regulatory framework, and any impediments to long-term diversified investing are ripe for review, given the current and future trends.
"These trends include the impact of an ageing population, the rise of individual decision-making, the increasing size of the superannuation pool and the continuing diversity and online connectivity of structures and providers. These factors have vastly shifted the superannuation landscape, and therefore require a reinvigorated policy approach."
In relation to the overarching regulatory framework, ASFA's submission highlights 10 areas that should drive regulatory philosophy and reform, including:
- acknowledging the impact of the rise of individual decision making and how that impacts the high duty of care that needs to be applied to money invested for retirement purposes
- identifying any systemic risks across all three pools of money in the system: pooled, self-managed super fund (SMSF) and retirement, both separately and collectively
- responding to the increasing linkages between superannuation and other parts of the social security and tax systems
- assisting future retirees looking for a wider selection of income-stream products by removing impediments and enabling innovation and competition in the market
- focusing on the needs of the developing electronic payments system and online connectivity between all moving parts of the system.
When it comes to superannuation investment, ASFA cautions against the mandating of asset allocations.
"Market forces primarily should dictate where capital flows. Any intervention is likely to lead to poorer performance and lower returns for fund members," says Ms Vamos.
"However, there are areas where the government can act to remove impediments that hinder superannuation funds from investing in certain asset classes, and help create a better match with the risk and return profiles that funds require."
"In particular, when it comes to infrastructure investment, we would encourage the government to reassess the ways that pooled superannuation funds manage liquidity risk, and explore innovative solutions in this area. For example, one option may be to consider the use of repurchase arrangements or overdraft facilities, which would ensure that super funds have the ability to meet redemption requests, even in difficult market conditions.
"In addition, we call on state governments to follow the example set in New South Wales and be more flexible in the way they structure the funding and financing of infrastructure projects, to better match the risk and reward preferences of superannuation investors," Ms Vamos concluded.
For further information, please contact:
Lisa Chikarovski, Media Manager, 0451 949 300.
ASFA is the peak policy, research and advocacy body for Australia's superannuation industry. It is a not-for-profit, sector-neutral, and non-party political national organisation, which aims to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.