Super investments in Australia's financial markets have strongly reduced financial system instability – with our nation's super system acting as a stable, sophisticated, long-term, counter-cyclical investor in ways that are the envy of other countries.
Profit-to-member super funds have been especially pivotal in supporting enviable financial system stability and delivering strong retirement savings for the 12 million everyday Australians they serve.
The Super Members Council's submission to the Australian Securities and Investments Commission (ASIC) discussion paper on Australia's evolving capital markets strongly contends the super system's growth is a strength, not a risk, which is key to national prosperity.
It highlights the benefits of private market investments for super fund members and the economy.
"Australia's $2 trillion pool of super savings in profit-to-member super funds has not only improved the lives of working people but also generated national prosperity," SMC EGM Strategy & Insights Matt Linden said.
The Reserve Bank of Australia's latest Financial Stability Review also noted the super sector has historically supported financial stability, but policy interventions impacting on liquidity could jeopardise this, underscoring the importance of preservation as a key policy setting.
Profit-to-member super funds invest more in Australia's private markets – in things like energy infrastructure, data centres, and air and seaports - than other APRA-regulated super funds.
The submission calls for a balanced review of capital markets, considering both opportunities and risks, while warning against imposing more regulation or reporting requirements without proper consideration of the costs and benefits for millions of super fund members.
"In the first three years of the APRA performance tests, profit-to-member super funds added almost $18.5 billion to members' savings above market benchmarks and outperformed global peers," Mr Linden said.
"To continue to deliver strong investment returns to support the retirements of millions of Australians, it is imperative system settings continue to support scale and super's long investment horizon, which are safeguarded by key policy principles of preservation, universality, and compulsion," he said.
These long-standing super system characteristics allow funds to optimise portfolio construction for members by leveraging predictable cashflows to invest over long horizons, leading to higher long-term net returns and stronger system stability.
However, fundamental system changes – for example, policy proposals for early withdrawal of super for house deposits – would put this enviable stability and strong investment returns at risk.
Net investment returns for millions of everyday Australians with super could be 0.3 - 0.6% lower each year if changes to current preservation rules – such as early release of super for housing - undermined funds' ability to be long-term investors for their members, new analysis by Frontier Advisors found.
A 0.5% reduction could reduce a person's super balance by up to 14.1% or $246,200 over their working life, the analysis shows.
Frontier's Superannuation liquidity management and investment in private markets report was commissioned by SMC and forms part of its submission to the ASIC paper.
The submission also highlights the importance of greater collaboration and data sharing between regulators to avoid duplication and improve regulatory efficiency.
The opinions above are those of the author in their capacity as spokesperson for Super Members Council (SMC). SMC, the authors and all other persons involved in the preparation of this information are thereby not giving legal, financial or professional advice for individual persons or organisations.
