tag:theconversation.com,2011:/fr/topics/superannuation-funds-31624/articlessuperannuation funds – The Conversation2024-01-28T19:03:51Ztag:theconversation.com,2011:article/2179222024-01-28T19:03:51Z2024-01-28T19:03:51ZAfter a lifetime studying superannuation, here are 5 things I wish I knew earlier<figure><img src="https://images.theconversation.com/files/565034/original/file-20231211-23-sqk7f.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5366%2C3017&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/adult-hipster-son-old-senior-father-2022314720">Shutterstock</a></span></figcaption></figure><p>Amassing the wealth needed to support retirement by regular saving is a monumental test of personal planning and discipline. Fortunately for most Australian workers, the superannuation system can help. </p>
<p>Superannuation uses the carrot of tax incentives, and the sticks of compulsion and limited access, to make us save for retirement. </p>
<p>There are benefits to paying timely attention to your super early in your working life to get the most from this publicly mandated form of financial self-discipline. </p>
<p>I’ve been researching and thinking about superannuation for most of my career. Here’s what I wish I knew at the beginning of my working life.</p>
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Read more:
<a href="https://theconversation.com/women-and-low-income-earners-miss-out-in-a-superannuation-system-most-australians-think-is-unfair-207633">Women and low-income earners miss out in a superannuation system most Australians think is unfair</a>
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<h2>1. Check you’re actually getting paid super</h2>
<p>First, make sure you are getting your dues. </p>
<p>If you are working, your employer must contribute <a href="https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay">11% of your earnings</a> into your superannuation account. By July 2025 the rate will increase to 12%. </p>
<p>This mandatory payment (the “<a href="https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/super-guarantee">superannuation guarantee</a>”) may look like yet another tax but it is an important part of your earnings (would you take an 11% pay cut?). </p>
<p>It is worth checking on, and worth <a href="https://www.ato.gov.au/calculators-and-tools/super-report-unpaid-super-contributions-from-my-employer">reporting</a> if it is not being paid. </p>
<p>The Australian Tax Office <a href="https://oia.pmc.gov.au/sites/default/files/posts/2023/05/Impact%20Analysis%20-%20Unpaid%20Superannuation%20Guarantee%20package.pdf">estimates</a> there is a gap between the superannuation employers should pay and what they do pay of around 5% (or $A3.3 billion) every year.</p>
<p>Failing to pay is <a href="https://oia.pmc.gov.au/sites/default/files/posts/2023/05/Impact%20Analysis%20-%20Unpaid%20Superannuation%20Guarantee%20package.pdf">more common</a> among the accommodation, food service and construction industries, as well as small businesses.</p>
<p>Don’t take your payslip at face value; cross-check your super account balance and the annual statement from your fund.</p>
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<a href="https://images.theconversation.com/files/565036/original/file-20231211-19-glzd44.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A woman checks a computer and a piece of paper closely." src="https://images.theconversation.com/files/565036/original/file-20231211-19-glzd44.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/565036/original/file-20231211-19-glzd44.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/565036/original/file-20231211-19-glzd44.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/565036/original/file-20231211-19-glzd44.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/565036/original/file-20231211-19-glzd44.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/565036/original/file-20231211-19-glzd44.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/565036/original/file-20231211-19-glzd44.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Cross-check your super account balance and the annual statement from your fund.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-latin-business-woman-manager-accounting-2257912259">Shutterstock</a></span>
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<h2>2. Have just one super account</h2>
<p>Don’t make personal donations to the finance sector by having more than one superannuation account.</p>
<p>Two super accounts mean you are donating unnecessary administration fees, possibly redundant insurance premiums and suffering two times the confusion to manage your accounts. </p>
<p>The superannuation sector does not need your charity. If you have more than one super account, please consolidate them into just one today. You can do that <a href="https://moneysmart.gov.au/how-super-works/consolidating-super-funds">relatively easily</a>. </p>
<h2>3. Be patient, and appreciate the power of compound interest</h2>
<p>If you’re young now, retirement may feel a very distant problem not worth worrying about until later. But in a few decades you’re probably going to appreciate the way superannuation works. </p>
<p>As a person closing in on retirement, I admit I had no idea in my 20s how much my future, and the futures of those close to me, would depend on my superannuation savings.</p>
<p>Now I get it! <a href="https://www.nber.org/papers/w27459">Research</a> <a href="https://economics.mit.edu/sites/default/files/publications/pandp.20221022.pdf">shows</a> the strict rules preventing us from withdrawing superannuation earlier are definitely costly to some people in preventing them from spending on things they really need. For many, however, it stops them spending on things that, in retrospect, they would rate as less important.</p>
<p>But each dollar we contribute in our 30s is worth around three times the dollars we contribute in our 50s. This is because of the advantages of time and <a href="https://moneysmart.gov.au/saving/compound-interest">compound interest</a> (which is where you earn interest not just on the money initially invested, but on the interest as well; it’s where you earn “interest on your interest”). </p>
<p>For some, adding extra “voluntary” savings can build up retirement savings as a buffer against the periods of unemployment, disability or carer’s leave that most of us experience at some stage. </p>
<h2>4. Count your blessings</h2>
<p>If you are building superannuation savings, try to remember you’re among the lucky ones.</p>
<p>The benefits of super aren’t available to those who can’t work much (or at all). They face a more precarious reliance on public safety nets, like the Age Pension.</p>
<p>So aim to maintain your earning capacity, and pay particular attention to staying employable if you take breaks from work. </p>
<p>What’s more, superannuation savings are invested by (usually) skilled professionals at rates of return hard for individual investors to achieve outside the system. </p>
<p>Many larger superannuation funds offer members types of investments – such as infrastructure projects and commodities – that retail investors can’t access. </p>
<p>The Australian Prudential Regulation Authority (APRA) also <a href="https://www.apra.gov.au/industries/superannuation">checks</a> on large funds’ investment strategies and performance. </p>
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<a href="https://images.theconversation.com/files/565039/original/file-20231211-22-kfo8f9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A woman holds her baby while walking in the park." src="https://images.theconversation.com/files/565039/original/file-20231211-22-kfo8f9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/565039/original/file-20231211-22-kfo8f9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/565039/original/file-20231211-22-kfo8f9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/565039/original/file-20231211-22-kfo8f9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/565039/original/file-20231211-22-kfo8f9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/565039/original/file-20231211-22-kfo8f9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/565039/original/file-20231211-22-kfo8f9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Pay attention to staying employable if you take breaks from work.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/mother-holds-her-daughter-arms-she-2263449955">Shutterstock</a></span>
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<h2>5. Tough decisions lie ahead</h2>
<p>The really hard work is ahead of you. The saving or “accumulation” phase of superannuation is mainly automatic for most workers. Even a series of non-decisions (defaults) will usually achieve a satisfactory outcome. A little intelligent activity will do even better. </p>
<p>However, at retirement we face the challenge of making that accumulated wealth cover our needs and wants over an uncertain number of remaining years. We also face variable returns on investments, a likely need for aged care and, in many cases, declining cognitive capacity. </p>
<p>It’s helpful to frame your early thinking about superannuation as a means to support these critical decades of consumption in later life.</p>
<p>At any age, when we review our financial management and think about what we wish we had known in the past, we should be realistic. Careful and conscientious people still make mistakes, procrastinate and suffer from bad luck. So if your super isn’t where you had hoped it would be by now, don’t beat yourself up about it. </p>
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Read more:
<a href="https://theconversation.com/age-pension-cost-to-ease-by-2060s-but-super-tax-breaks-to-swell-intergenerational-report-212012">Age pension cost to ease by 2060s but super tax breaks to swell: Intergenerational report</a>
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<img src="https://counter.theconversation.com/content/217922/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Susan Thorp is a member of UniSuper. She receives and has received research funding from the Australian Research Council, the Australian Securities and Investments Commission, the TIAA Institute (USA), and UniSuper and Cbus Superannuation funds via ARC Linkage Grants. Thorp was previously Professor of Finance and Superannuation at UTS, a position that was partly funded by Sydney Financial Forum (Colonial First State Global Asset Management), the NSW Government, the Association of Superannuation Funds of Australia (ASFA), the Industry Superannuation Network (ISN), and the Paul Woolley Centre for the Study of Capital Market Dysfunctionality, UTS. She is an Associate Investigator for the ARC Centre of Excellence in Population Ageing Research (CEPAR), a member of the OECD-International Network on Financial Education Research Committee, the Steering Committee of the Melbourne-Mercer Global Pensions Index, the Australian Securities and Investments Commission (ASIC) Consultative Committee, the Board of New College (UNSW) and the Research Committee of Super Consumers Australia, a not-for-profit advocacy organisation for Australian pension plan participants.</span></em></p>As a person now closing in on retirement, I admit I had no idea in my 20s how much my future, and the futures of those close to me, would depend on my superannuation savings.Susan Thorp, Professor of Finance, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2140632023-11-07T19:35:03Z2023-11-07T19:35:03ZMaking money green: Australia takes its first steps towards a net zero finance strategy<p>Just north of Jamestown in South Australia, 70 kilometres east of the Spencer Gulf and next to a wind farm of nearly 100 turbines, stands the world’s <a href="https://www.cefc.com.au/where-we-invest/case-studies/sa-big-battery-a-game-changer/">first big battery</a>. </p>
<p>Built in partnership with <a href="https://www.tesla.com/videos/powerpack-hornsdale">Tesla</a> and financed and operated by <a href="https://www.energy-storage.news/upgrade-at-tesla-battery-project-demonstrates-feasibility-of-once-in-a-century-energy-transformation-for-australia/">Neoen</a>, a French multinational renewable energy developer, the <a href="https://en.wikipedia.org/wiki/Hornsdale_Power_Reserve">Hornsdale Power Reserve</a> and other big battery projects could stimulate a homegrown battery industry, contributing many <a href="https://fbicrc.com.au/wp-content/uploads/2023/03/Charging-Ahead_Final-Report_Full-17-March-2023-1.pdf">billions of dollars and thousands of jobs</a> to the Australian economy. But for that industry to rise, it will need money.</p>
<p>Australia aspires not only to transition its economy to net zero emissions, but to become a green energy superpower. That means building a host of solar and wind farms, batteries, electric vehicle charging stations, upgrades to the grid and to all kinds of buildings, as well as investments in new technology. </p>
<p>These investments and big infrastructure projects don’t come cheap. Getting to net zero emissions by 2050 requires investment in renewable energy of A$754 billion in power generation alone, according to <a href="https://www.uts.edu.au/sites/default/files/2022-06/Supercharging%20transition%202021%20Update%20-%20Oct%2022%20update.docx.pdf">research</a> by the <a href="https://www.uts.edu.au/isf">UTS Institute for Sustainable Futures</a> and funded by Future Super.</p>
<p><iframe id="tc-infographic-973" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/973/534c98def812dd41ac56cc750916e2922539729b/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>The size of the green finance challenge</h2>
<p>By 2030, the world will have to invest <a href="https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-a-decade-of-data/">an estimated US$4.3 trillion</a> a year – roughly <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?most_recent_value_desc=true">the GDP of Japan</a>, the world’s third-largest economy – in climate finance. These financial flows need to grow by 21% a year, on average. Without this enormous increase, the economic transition will not happen in time to avoid the worst impacts of climate change. </p>
<p>The scale of financing means that superannuation funds and other big institutional investors <a href="https://www.theaustralian.com.au/business/financial-services/super-funds-voice-concerns-over-reaching-2030-green-targets/news-story/43aed4b3d27a80c1f8cc349390acc4a8">must be involved</a>. They need to know where their money is going, and whether investments are genuine or a case of “greenwashing”. They need certainty that companies in which they invest have solid plans to reduce their climate risk, and the ability to ask the companies questions when they don’t.</p>
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Read more:
<a href="https://theconversation.com/australias-new-dawn-becoming-a-green-superpower-with-a-big-role-in-cutting-global-emissions-216373">Australia's new dawn: becoming a green superpower with a big role in cutting global emissions</a>
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<p>But current financial regulation is not set up to support such best practice. To give just one example, default superannuation funds lack the <a href="https://www.apra.gov.au/sites/default/files/2022-12/Methodology%20paper%20-%20MySuper%20Heatmap.pdf">benchmarks</a> – measures of performance assessed by the Australian Prudential Regulation Authority – they need to invest in start-up businesses that are developing clean energy technologies. </p>
<p>Successive Australian governments have been slow to grasp this reality, and we are now playing catch-up with many other countries. </p>
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<h2>Australia releases its strategy</h2>
<p>The <a href="https://treasury.gov.au/consultation/c2023-456756#:%7E:text=The%20strategy's%20policy%20priorities%20are,Australian%20Government%20leadership%20and%20engagement.">Australian government’s Sustainable Finance Strategy</a>, <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/new-steps-albanese-governments-sustainable-finance">released by Treasurer Jim Chalmers</a> last Thursday, lays solid foundations for this recovery. Yet more needs to be done if Australia is to achieve the strategy’s stated ambition to be a global sustainability finance leader.</p>
<p>The strategy is arranged around <a href="https://treasury.gov.au/consultation/c2023-456756#:%7E:text=The%20strategy's%20policy%20priorities%20are,Australian%20Government%20leadership%20and%20engagement.">three core pillars</a>. The first focuses on creating access to information that is credible, accurate and of practical value. It seeks to ensure markets operate efficiently and money flows to where it is most needed.</p>
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Read more:
<a href="https://theconversation.com/beyond-juukan-gorge-how-first-nations-people-are-taking-charge-of-clean-energy-projects-on-their-land-213864">Beyond Juukan Gorge: how First Nations people are taking charge of clean energy projects on their land</a>
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<p>From July 1 2024, large Australian companies and financial institutions will have to <a href="https://www.climateworkscentre.org/news/mandatory-climate-related-financial-disclosures-for-australian-companies-explained/#:%7E:text=Under%20Treasury's%20proposal%2C%20companies%20will,requiring%20substantial%20forward%2Dlooking%20information.">disclose information</a> about the impacts of climate on their business, the risks climate change poses to their operations, and how they plan to decarbonise. </p>
<p>The disclosure requirements will be based on <a href="https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/ifrs-s2-climate-related-disclosures/#:%7E:text=IFRS%20S2%20requires%20an%20entity,related%20risks%20and%20opportunities%20that">internationally accepted standards</a>, to ensure Australian and overseas investors can compare data across companies and countries. </p>
<p>The government is also supporting the development of an <a href="https://www.asfi.org.au/taxonomy">Australian sustainable finance taxonomy</a> – a set of criteria that enables investors to evaluate whether and to what extent an investment supports sustainability goals. </p>
<p>A taxonomy spells out which investments result in real decarbonisation, and reduces the likelihood of false claims about the sustainability of projects and investments. A government agency will manage the taxonomy, which will start as a voluntary code but may eventually become mandatory. </p>
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Read more:
<a href="https://theconversation.com/how-to-beat-rollout-rage-the-environment-versus-climate-battle-dividing-regional-australia-213863">How to beat 'rollout rage': the environment-versus-climate battle dividing regional Australia</a>
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<p>Large companies will also be required to disclose their net zero transition plan, if they have one. With companies representing <a href="https://acsi.org.au/wp-content/uploads/2023/08/Promises-Pathways-Performance-Climate-reporting-in-the-ASX200-August-2023.pdf">80% of the market capitalisation</a> of ASX 200 companies pledging to achieve net zero emissions, the government wants to ensure their plans are credible. It wants the corporate regulator, the <a href="https://asic.gov.au/">Australian Securities and Investment Commission</a> (ASIC), to set out its expectations of the plans – a welcome step.</p>
<p>The second pillar focuses on building the capabilities of Australia’s financial system regulators to manage risk and to clamp down on greenwashing – the practice of making misleading or deceptive claims about the environmental benefits of activities or assets. </p>
<h2>Fighting greenwashing</h2>
<p>ASIC Deputy Chair Karen Chester believes the economic cost and loss of investor confidence caused by greenwashing “<a href="https://asic.gov.au/about-asic/news-centre/speeches/climate-change-urgency-integrity-ambition/">cannot be overstated</a>”. Her organisation has set out guidelines to help financial institutions identify it. This year ASIC launched its <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-043mr-asic-launches-first-court-proceedings-alleging-greenwashing/">first three legal actions</a>, including one against the local arm of US investment giant <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-196mr-asic-commences-greenwashing-case-against-vanguard-investments-australia/">Vanguard</a>, and another against <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-215mr-asic-commences-greenwashing-case-against-active-super/">Active Super</a>, which allegedly falsely claimed it had eliminated investments, such as coal mining, that posed too great a risk to the environment and the community. </p>
<p>The third pillar concerns government leadership and engagement. Such a large and rapid increase in the scale of private sector finance requires growth in a range of financial assets, including shares, bonds and other kinds of debt. </p>
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Read more:
<a href="https://theconversation.com/why-australia-urgently-needs-a-climate-plan-and-a-net-zero-national-cabinet-committee-to-implement-it-213866">Why Australia urgently needs a climate plan and a Net Zero National Cabinet Committee to implement it</a>
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<p>The government is supporting the development of a <a href="https://www.rba.gov.au/publications/bulletin/2023/sep/green-and-sustainable-finance-in-australia.html">green bond market</a> by issuing <a href="https://www.moneymanagement.com.au/features/all-eyes-australias-inaugural-sovereign-green-bonds">Australia’s first green sovereign bond</a> in June. These bonds are designed to establish standards for lending and borrowing for all green finance; they will also help the government to fund projects such as electric vehicle charging infrastructure. </p>
<p>Finally, the strategy recognises the importance of <a href="https://www.adb.org/what-we-do/funds/australian-climate-finance-partnership">collaboration across the Asia-Pacific</a>. If Australia achieves its goal of becoming a regional sustainable finance hub it would not only benefit our national interest but help Pacific Island nations to raise the finance to decarbonise. </p>
<h2>What’s missing from the strategy?</h2>
<p>The strategy does not focus on <a href="https://www.uts.edu.au/sites/default/files/2022-10/Advancing%20climate%20skills%20in%20the%20Australian%20financial%20system%20FINAL_0.pdf">green finance skills</a> and competencies. Yet these capabilities, ranging from a basic understanding of what business activities are unsustainable to specialist expertise in the use of scenario analysis to assess climate risk, are essential to the net zero transition. </p>
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Read more:
<a href="https://theconversation.com/the-original-and-still-the-best-why-its-time-to-renew-australias-renewable-energy-policy-213879">The original and still the best: why it's time to renew Australia's renewable energy policy</a>
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<p>LinkedIn’s recent <a href="https://economicgraph.linkedin.com/research/global-green-skills-report">Green Skills Report</a> shows that, globally, the finance sector is lagging behind other sectors in building green skills. And Australia ranks only 30th in a list of countries on its share of talent for green finance.</p>
<p>Australia’s financial system must urgently transform itself to meet the climate challenge. If the financing of the transition were a bicycle race, Australia has now caught up to the global peloton. The next step is to take the lead.</p><img src="https://counter.theconversation.com/content/214063/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alison Atherton is a member of the Australian Sustainable Finance Institute's Capability Reference Group</span></em></p><p class="fine-print"><em><span>Gordon Noble does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If big money is going to invest in clean energy and technology, the rules have to be clear. Australia’s launch of a green finance strategy last week was a good start but there is further to go.Alison Atherton, Program Lead, Business, Economy and Governance at the Institute for Sustainable Futures., University of Technology SydneyGordon Noble, Research Director, Institute for Sustainable Futures, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1888022022-08-26T02:00:02Z2022-08-26T02:00:02ZHow do I find out what my superannuation fund invests in? A finance expert explains<figure><img src="https://images.theconversation.com/files/480730/original/file-20220824-20-d0ker3.jpg?ixlib=rb-1.1.0&rect=0%2C617%2C8756%2C4371&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>You want your superannuation savings to be invested in things that also serve the planet’s long-term interests. But how can you be sure your fund’s values align with yours – or even its own claims?</p>
<p>This question has become increasingly pertinent as demand for environmentally and socially sustainable investments <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-141mr-how-to-avoid-greenwashing-for-superannuation-and-managed-funds/">grows</a> – and with it incentives for financial institutions to put the best spin on their offerings. </p>
<p>One consultancy specialising in “responsible investment” reckons <a href="https://thenewdaily.com.au/finance/superannuation/2021/08/16/greenwashing-super-funds/">10% of the funds</a> it has examined do not have the sustainability orientation they claim.</p>
<p>Among those <a href="https://www.edo.org.au/2022/08/10/hestas-fossil-fuel-investments-may-amount-to-a-breach-of-the-law/">accused of greenwashing</a> in recent months is one of Australia’s biggest super funds, HESTA (the industry fund for health and community service workers), which has promoting its “clean energy” credentials while still holding shares in fossil-fuel companies <a href="https://www.ai-cio.com/news/australias-hesta-accused-of-greenwashing/">Woodside and Santos</a>.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/super-funds-are-feeling-the-financial-heat-from-climate-change-146191">Super funds are feeling the financial heat from climate change</a>
</strong>
</em>
</p>
<hr>
<p>So how can you check what your superannuation fund invests in? </p>
<p>Super funds are legally obliged to disclose how they invest your money in two different disclosure documents – a Product Disclosure Statement and a Portfolio Holdings Disclosure. </p>
<p>Both will be available on a super fund’s website, though how easily you can find them will vary.</p>
<p>The rest of this article is going to explain what information these documents provide, how useful this information is likely to be, and your best bet to ensure your super fund reflects your values.</p>
<h2>The Product Disclosure Statement</h2>
<p>Product disclosure statements are required by the financial regulator (the Australian Securities and Investments Commission) for all financial products. </p>
<p>This document outlines the most basic but important information of an investment product’s features, benefits, risks and costs, including fees and taxes. The format is standardised, with one section (Section 5) covering with “How we invest your money”. </p>
<p>The information it contains is broad. At best you’ll learn how the fund splits its investments between safe and riskier assets, and between different asset classes – Australian shares, international shares, property trusts, infrastructure trust, cash and so on. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Examples of the 'how we invest your money' sections in product disclosure statements from the REST and HESTA super funds." src="https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=426&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=426&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=426&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=535&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=535&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480747/original/file-20220824-22-3i57gn.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=535&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Examples of the ‘how we invest your money’ sections in product disclosure statements from the REST and HESTA super funds.</span>
<span class="attribution"><span class="source">REST; HESTA</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
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<h2>Portfolio Holding Disclosure</h2>
<p>For a comprehensive look at where your money is invested in, you can consider the Portfolio Holdings Disclosure. </p>
<p>This document lists a fund’s complete holdings – including the percentage and value of every single company stock held.</p>
<p>Portfolio holdings disclosures are relatively new, being obligatory only since March 2022 under <a href="https://www.legislation.gov.au/Details/F2021L01531">legislation</a> meant to improve transparency in the sector.</p>
<p>However, super funds aren’t obliged to provide this information in a consistent, easily understandable way. </p>
<p>For a non-expert who doesn’t know what to look for, the level of detail can be mind-boggling. You may find yourself scrutinising a spreadsheet listing thousands of items.</p>
<p>The Australian Retirement Trust’s Portfolio Holdings Disclosure for its “Lifecycle Balanced Pool”, for example, has more than <a href="https://www.australianretirementtrust.com.au/investments/what-we-invest-in/superannuation-investments">8,000</a> line items.</p>
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<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=383&fit=crop&dpr=1 600w, https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=383&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=383&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=481&fit=crop&dpr=1 754w, https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=481&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/481022/original/file-20220825-20-rwd589.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=481&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A fragment of the portfolio holding disclosure for the Lifecycle Balanced Pool fund.</span>
<span class="attribution"><a class="source" href="https://www.australianretirementtrust.com.au/investments/what-we-invest-in/superannuation-investments">Australian Retirement Trust</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>Some super funds have made the effort to provide this information in a more user-friendly format. An example is Future Super, which allows you to <a href="https://www.futuresuper.com.au/everything-we-invest-in/?utm_source=google&utm_medium=cpc&utm_campaign=1757241588&utm_content=68234193065&utm_term=future%20super&campaigntype=SearchNetwork-1757241588&device=c&campaignid=1757241588&adgroup=68234193065&keyword=future%20super&matchtype=p&placement=&adposition=&location=9069039&gclid=CjwKCAjwmJeYBhAwEiwAXlg0AYOEe2tJViZiZBgUk3bt1h9LNuHx1jWnGy6VzqGaNjBzOEi60852JRoCel8QAvD_BwE">search and filter</a> portfolio holdings by asset class and country of origin. </p>
<p>But if your concern is to avoid investing in some specific activity such as in mining fossil fuels or gambling, you’ll need to know the companies and other assets you want to avoid for this to be helpful.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-no-we-wont-change-the-corporate-world-with-divestment-and-boycotts-145021">Vital Signs: No, we won't change the corporate world with divestment and boycotts</a>
</strong>
</em>
</p>
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<h2>Your best options</h2>
<p>This is not to say portfolio holding disclosure obligations are useless. They are incredibly useful – a huge leap forward in the sector’s accountability. They just aren’t designed for consumers. </p>
<p>So there is still much work to be done to make the sector truly transparent. </p>
<p>What would really help is independent certification and ratings of super products, similar to government websites and programs that certify energy efficiency and allow comparison of electricity plans. </p>
<p>In the meantime, I can offer you one big tip.</p>
<p>Choose a specific superannuation product that markets itself on its environmental or social sustainability credentials. Most super funds now provide these choices alongside their more traditional investment options.</p>
<p>There is a variety of “screening” approaches to ethical investments. Some exclude entire sectors. Others include the best environmental and social performers even among “sinful” industries such as tobacco or weapons. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/sustainable-investment-is-it-worth-the-hype-heres-what-you-need-to-know-182533">Sustainable investment: is it worth the hype? Here's what you need to know</a>
</strong>
</em>
</p>
<hr>
<p>So just because a super product is marketed as “ethical” or “sustainable” doesn’t guarantee you will agree with all its investments. </p>
<p>But there is a much higher likelihood of it living up to its claims due to greater scrutiny by third parties such as environmental groups as well as the financial regulator. </p>
<p>The Australian Securities and Investments Commission put super funds on notice earlier this year with a “<a href="https://asic.gov.au/regulatory-resources/financial-services/how-to-avoid-greenwashing-when-offering-or-promoting-sustainability-related-products/">guidance note</a>” about the growing risk of greenwashing in sustainability-related financial products. </p>
<p>It reminded funds that “making statements (or disseminating information) that are false or misleading, or engaging in dishonest, misleading or deceptive conduct in relation to a financial product or financial service” is against the law.</p>
<p>So super funds know their portfolios are being scrutinised.</p>
<p>Switching your investment option or fund is simpler than you think. You only need to fill out and lodge a form. Just be sure to compare fees and performance, and seek a second opinion from trustworthy adviser before “voting with your wallet”.</p><img src="https://counter.theconversation.com/content/188802/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Natalie Peng does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Making sure your fund’s financial values align with your ethical values isn’t that simple – but here’s what you can do.Natalie Peng, Lecturer in Accounting, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1711122021-11-18T19:07:14Z2021-11-18T19:07:14ZAustralia’s insider trading laws might not apply to super – here’s why they should<figure><img src="https://images.theconversation.com/files/432557/original/file-20211118-27-xz449m.jpg?ixlib=rb-1.1.0&rect=179%2C23%2C3682%2C1682&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Insider trading is something that only happens in companies listed on the stock exchange, right?</p>
<p>It could be happening in Australian superannuation funds. </p>
<p>The Australian Securities and Investments Commission suspects so. </p>
<p>It has examined the behaviour of <a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-282mr-surveillance-of-investment-switching-by-super-fund-executives-identifies-concerns-with-trustees-conflicts-arrangements/">23</a> members of the trustee boards of Australian super funds (both retail and industry) during the early days of the pandemic.</p>
<p>Super funds hold assets which are only revalued on its books <a href="https://www.afr.com/companies/financial-services/super-fund-trustee-snouts-in-the-trough-20211031-p594mz">from time to time</a>, sometimes monthly, sometimes quarterly.</p>
<p>When asset values were falling sharply last year, it meant super fund trustees had early access to information about valuation decisions and the ability to influence those decisions.</p>
<h2>Using information ‘for personal gain’</h2>
<p>ASIC wanted to find out whether some trustees were “using this information for personal gain” by switching their own personal super investment options based on their knowledge of the timing of the revaluations yet to be announced.</p>
<p>It says the conduct it uncovered “fell below ASIC’s expectations”.</p>
<p>The investigation follows an inquiry by the <a href="https://www.afr.com/politics/federal/super-execs-questioned-over-fund-switches-during-pandemic-turmoil-20201117-p56f8d">parliament’s economics committee</a> that found executives at AustralianSuper, NGS Super, Rest, First State, Hostplus and Intrust Super had switched their own personal super out of options exposed to revaluations at the start of the pandemic.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/insider-trading-has-become-more-subtle-142981">Insider trading has become more subtle</a>
</strong>
</em>
</p>
<hr>
<p>It’s behaviour that seems to have a lot in common with <a href="http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s1043a.html">insider trading</a>, in which insiders use inside information for their own benefit at the expense of other investors.</p>
<p>But while insider trading in relation to financial products is illegal, the definition of financial products used in the Australian legislation excludes superannuation products that are not provided by a “public offer entity”. </p>
<h2>Not caught by the law</h2>
<p>This means that the laws do not apply to some industry super funds, but might apply to others that are open to all members of the public regardless of the industry they work in.</p>
<p>As well, “trading” in financial products is held to only occur where a person applies for, acquires, or disposes of those products, or enters into an agreement to do so. </p>
<p>This means that insider trading laws might apply when a person first joins a public superannuation fund, but not when they switch their investment options within a fund.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/insider-trading-is-greedy-not-glamorous-and-it-hurts-us-all-60792">Insider trading is greedy, not glamorous, and it hurts us all</a>
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</em>
</p>
<hr>
<p>ASIC has conceded this result in its announcement, saying the activity it has detected might not be caught by the insider trading prohibition, but is “similar to insider trading and may contravene other provisions of the law”.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=969&fit=crop&dpr=1 600w, https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=969&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=969&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1218&fit=crop&dpr=1 754w, https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1218&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/432554/original/file-20211118-26-1nz8poa.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1218&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Not always glamourous.</span>
<span class="attribution"><a class="source" href="https://www.20thcenturystudios.com/movies/wall-street-money-never-sleeps">20th Century Studios</a></span>
</figcaption>
</figure>
<p>When insider trading laws were last amended two decades ago under the 2002 <a href="https://www.legislation.gov.au/Details/C2005C00498">Financial Services Reform Act</a>, the financial products to which the laws applied were expanded to include “functionally similar” products – but not to all super funds. </p>
<p>At the time super funds held less than <a href="https://www.apra.gov.au/superannuation-australia-a-timeline">A$500 billion</a>. </p>
<p>They now hold more than <a href="https://www.apra.gov.au/news-and-publications/apra-releases-superannuation-statistics-for-june-2021">$3 trillion</a>, which is much more than the entire Australian economy turns over in a year, and constitute for most Australians their biggest financial investment outside the family home.</p>
<p>The restriction, especially the distinction between some kinds of industry funds and others, no longer makes sense.</p>
<p>The <a href="https://www.alrc.gov.au/inquiry/review-of-the-legislative-framework-for-corporations-and-financial-services-regulation/">Australian Law Reform Commission</a> is currently undertaking an inquiry into financial services regulation, which includes the provisions of the Corporations Act prohibiting insider trading. </p>
<h2>We invest more in super than in shares</h2>
<p>It would be timely to amend insider trading laws so that they catch the switching of superannuation investment options within funds and eliminate the distinction between different types of funds. </p>
<p>Australians invest more money in super than in the <a href="https://www.rba.gov.au/publications/rdp/2019/pdf/rdp2019-04.pdf">Australian share market</a>.</p>
<p>There is no obvious reason why it shouldn’t be as well regulated.</p><img src="https://counter.theconversation.com/content/171112/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Juliette Overland does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>ASIC suspects some super fund trustees of using inside information for personal gain, but they might not be caught by the insider trading laws.Juliette Overland, Associate Professor, Corporate Law, University of Sydney Business School, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1499182020-11-12T02:17:41Z2020-11-12T02:17:41ZAn Australian man successfully sued his super fund over climate risk. Here’s what that means for your nest egg<figure><img src="https://images.theconversation.com/files/368958/original/file-20201112-15-qppb8t.jpg?ixlib=rb-1.1.0&rect=8%2C8%2C5982%2C2550&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The A$57 billion Rest super fund last week <a href="https://www.abc.net.au/news/2020-11-02/rest-super-commits-to-net-zero-emmissions/12840204">pledged</a> to overhaul the way it manages climate risk, following a lawsuit by a 25-year-old member. The concession raises the bar for the way Australian superannuation funds respond to climate change.</p>
<p>The fact that Rest agreed to <a href="https://equitygenerationlawyers.com/cases/mcveigh-v-rest/">settle</a> the case before a trial is significant. It indicates that the proposition behind the case – that super funds have a legal duty to identify, manage and disclose climate-related risks – is no longer disputed.</p>
<p>Rest has agreed to align its investments with net-zero emissions by 2050 and to publicly disclose its holdings, among other undertakings.</p>
<p>This is an ambitious and much-needed step up. It will influence how Australia’s A$3 trillion superannuation industry invests, and how our retirement savings are protected from climate risk.</p>
<figure class="align-center ">
<img alt="A sign at a climate rally" src="https://images.theconversation.com/files/368961/original/file-20201112-23-xtaequ.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/368961/original/file-20201112-23-xtaequ.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/368961/original/file-20201112-23-xtaequ.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/368961/original/file-20201112-23-xtaequ.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/368961/original/file-20201112-23-xtaequ.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/368961/original/file-20201112-23-xtaequ.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/368961/original/file-20201112-23-xtaequ.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Australian companies, including super funds, are facing public pressure to respond to climate change.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>Climate: a risky business</h2>
<p>Brisbane man Mark McVeigh sued <a href="https://rest.com.au/">Rest</a> for failing to disclose how the fund was managing the financial risks posed by climate change. These risks fall into two main categories:</p>
<ul>
<li><p>physical risks from extreme events such as bushfires, storms and floods, which can damage assets and disrupt operations</p></li>
<li><p>risks arising from the transition to a low-carbon economy. These include new regulatory requirements to reduce greenhouse gas emissions, and associated market shifts.</p></li>
</ul>
<p>Climate risks are directly relevant for companies in many sectors, particularly energy and mining. But super funds, which pool capital and invest in these companies, are also exposed via reduced asset values and investment returns. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/saving-for-retirement-gives-you-power-and-ethical-responsibilities-148349">Saving for retirement gives you power, and ethical responsibilities</a>
</strong>
</em>
</p>
<hr>
<p>The legal claim alleged Rest’s trustee directors failed to act with care, skill and diligence when investing for McVeigh, by not properly considering the risks climate change poses to the fund’s investments. </p>
<p>In a <a href="https://rest.com.au/why-rest/about-rest/news/rest-reaches-settlement-with-mark-mcveigh">statement</a> as part of the settlement, Rest acknowledged climate change “could lead to catastrophic economic and social consequences … Accordingly, Rest, as a superannuation trustee, considers that it is important to actively identify and manage these issues.”</p>
<p>Rest also committed to significant changes to its investment practices. I analyse four of these pledges below, drawing on recent <a href="https://www.monash.edu/business/blt/our-research/showcase/institutional-investors-and-climate-change">empirical research</a>.</p>
<figure class="align-center ">
<img alt="Cyclone damage to homes" src="https://images.theconversation.com/files/368972/original/file-20201112-14-1ooa6lw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/368972/original/file-20201112-14-1ooa6lw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=385&fit=crop&dpr=1 600w, https://images.theconversation.com/files/368972/original/file-20201112-14-1ooa6lw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=385&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/368972/original/file-20201112-14-1ooa6lw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=385&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/368972/original/file-20201112-14-1ooa6lw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=484&fit=crop&dpr=1 754w, https://images.theconversation.com/files/368972/original/file-20201112-14-1ooa6lw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=484&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/368972/original/file-20201112-14-1ooa6lw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=484&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Climate-related natural disasters such as cyclones can damage assets.</span>
<span class="attribution"><span class="source">Dan Peled/AAP</span></span>
</figcaption>
</figure>
<h2>1. Net-zero emissions by 2050</h2>
<p>Rest pledged to align its portfolio to the Paris Agreement. In doing so, it joins a small number of other Australian superfunds such as <a href="https://www.smh.com.au/business/banking-and-finance/super-giant-hesta-divests-coal-commits-to-net-zero-investments-by-2050-20200625-p5562o.html">Hesta</a>, as well as high-profile companies such as <a href="https://www.abc.net.au/news/2020-10-29/anz-climate-policy-steps-away-from-coal-toward-carbon-neutrality/12825934">ANZ</a>, that have made <a href="https://www.smh.com.au/business/banking-and-finance/climate-lawyer-who-sued-super-fund-sets-sights-on-federal-government-over-bond-risks-20201103-p56b1d.html">similar commitments</a>.</p>
<p>Investors are still grappling with <a href="https://www.iigcc.org/our-work/paris-aligned-investment-initiative/">what it means</a> to decarbonise and align portfolios with the Paris Agreement. The agreement doesn’t allocate specific emissions reductions to nations, but it does allow for calculation of a global “emissions budget”. This can be used to develop scenarios involving various mitigation measures over different time frames. </p>
<p>All Paris-aligned scenarios involve, at a minimum, <a href="https://www.climatecouncil.org.au/resources/unburnable-carbon-why-we-need-to-leave-fossil-fuels-in-the-ground/">very significant reductions in fossil fuel use</a>. However, decarbonising existing portfolios is particularly challenging for Australian super funds. Many, including Rest, have substantial holdings in companies <a href="https://www.marketforces.org.au/campaigns/super/outofline/">actively pursuing</a> new fossil fuel projects such as Woodside Petroleum, Santos, Origin Energy, AGL and Caltex. </p>
<p>If Rest is serious about delivering on its pledge, it must divest from these companies, or secure a commitment to net-zero from these and the thousands of other companies in which it invests.</p>
<figure class="align-center ">
<img alt="Coal mining equipment at a coal mine" src="https://images.theconversation.com/files/368962/original/file-20201112-15-1mpz64j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/368962/original/file-20201112-15-1mpz64j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=377&fit=crop&dpr=1 600w, https://images.theconversation.com/files/368962/original/file-20201112-15-1mpz64j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=377&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/368962/original/file-20201112-15-1mpz64j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=377&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/368962/original/file-20201112-15-1mpz64j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=473&fit=crop&dpr=1 754w, https://images.theconversation.com/files/368962/original/file-20201112-15-1mpz64j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=473&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/368962/original/file-20201112-15-1mpz64j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=473&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Rest may have to divest from high-risk assets such as coal mines.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>2. Publicly disclose portfolio holdings and climate risk exposure</h2>
<p>The Australian superannuation industry is known for its poor transparency. One <a href="https://www.fssustainability.com.au/majority-of-super-funds-not-disclosing-portfolio-holdings-rainmaker">recent analysis</a> found only a handful of Australian super funds publish a complete list of the companies in which they hold shares. Most only reported the top 10 or 20 holdings.</p>
<p>Disclosure of basic factual information, such as top holdings and assets under management, is highly variable between and within funds. It is very hard to find out which companies a super fund invests in, and to what extent. Funds’ disclosure of exposure to climate risks and their management is also <a href="https://www.apra.gov.au/sites/default/files/climate_change_awareness_to_action_march_2019.pdf">patchy</a>.</p>
<p>Rest has now committed to publicly disclose its full portfolio, as well as its approach to climate-related risks, in line with <a href="https://www.fsb-tcfd.org">international best practice</a>. This is a crucial step towards improvement across the industry.</p>
<h2>3. Better consider climate-related risks</h2>
<p>Super funds can address climate-related risks using a range of <a href="https://responsibleinvestment.org/what-is-ri/ri-explained/">responsible investment approaches</a>. These include negative screening, which involves excluding high-risk assets such as coal, oil or gas reserves.</p>
<p>Australian super funds already use this approach, but generally only apply it to “green” investment products which represent a tiny share of the overall portfolio. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/unisuper-take-note-theres-no-retirement-on-a-dead-planet-132194">UniSuper take note: there's no retirement on a dead planet</a>
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<p>Unlike other large industry super funds, Rest does not appear to apply a climate-related screen, and it does not offer a green-labelled investment option. While these are not the only ways to manage climate risk, they are clear and highly visible approaches. There appears to be considerable scope for Rest to better address climate risk in its investment strategy and asset allocation. At the very least it has now committed to better disclose its approach.</p>
<h2>4. Actively consider shareholder resolutions</h2>
<p>Proposals by shareholders have recently emerged as a way to pressure Australian companies to disclose climate risks and commit to the clean energy transition. Super funds hold significant shareholdings in Australian companies, and how they vote can influence how a company responds.</p>
<p>Rest and others have a <a href="https://www.accr.org.au/downloads/accr-vote-like-you-mean-it-2019-final.pdf">patchy record</a> when it comes to supporting shareholder climate resolutions – even those simply asking for better climate risk disclosure. This underscores the considerable gap between Rest’s new commitment and recent practice.</p>
<figure class="align-center ">
<img alt="Shareholders vote at a company AGM" src="https://images.theconversation.com/files/368975/original/file-20201112-22-1pb2s7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/368975/original/file-20201112-22-1pb2s7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/368975/original/file-20201112-22-1pb2s7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/368975/original/file-20201112-22-1pb2s7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/368975/original/file-20201112-22-1pb2s7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/368975/original/file-20201112-22-1pb2s7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/368975/original/file-20201112-22-1pb2s7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Shareholder votes are used to pressure companies to act on climate.</span>
<span class="attribution"><span class="source">Richard Wainwright/AAP</span></span>
</figcaption>
</figure>
<h2>Raising the bar</h2>
<p>Rest’s new commitments are ambitious, and help consolidate an emerging “best practice” standard for superannuation funds on climate risk.</p>
<p>The commitments also underscore the key role super funds can play in society’s response to climate change. When climate is central to investment decision-making, funds can align capital and resources to the clean energy transition. </p>
<p>Because the case was settled out of court, Rest’s undertakings are not legally binding. However companies, regulators, interested members and NGOs will closely monitor whether the promises are implemented, and how the broader industry responds.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/nsw-has-joined-china-south-korea-and-japan-as-climate-leaders-now-its-time-for-the-rest-of-australia-to-follow-149731">NSW has joined China, South Korea and Japan as climate leaders. Now it's time for the rest of Australia to follow</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/149918/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anita Foerster does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The groundbreaking legal case has changed the game for how Australia’s $3 trillion superannuation industry invests, and how members are protected from climate risk.Anita Foerster, Senior Lecturer, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1438242020-08-05T19:58:28Z2020-08-05T19:58:28ZWarning: what COVID is doing to commercial property it is about to do to super funds<p>We’ve heard a lot about what the present crisis will do to <a href="https://propertyupdate.com.au/coronavirus-how-will-it-impact-australias-property-markets/">home</a> <a href="https://www.theguardian.com/australia-news/2020/mar/16/how-will-coronavirus-affect-australias-real-estate-market-and-house-prices">prices</a>, less about what it will do to <a href="https://www.commercialrealestate.com.au/news/office-property-now-in-covid-19-firing-line-969479/">commercial property</a> prices.</p>
<p>Commercial properties include office buildings, shopping centres, hotels and warehouses.</p>
<p>They account for <a href="https://www.superannuation.asn.au/ArticleDocuments/269/SuperStats-Jun2020.pdf.aspx?Embed=Y">8%</a> of the assets of Australian super funds.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/351238/original/file-20200805-237-3qmk3f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/351238/original/file-20200805-237-3qmk3f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/351238/original/file-20200805-237-3qmk3f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=365&fit=crop&dpr=1 600w, https://images.theconversation.com/files/351238/original/file-20200805-237-3qmk3f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=365&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/351238/original/file-20200805-237-3qmk3f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=365&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/351238/original/file-20200805-237-3qmk3f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=459&fit=crop&dpr=1 754w, https://images.theconversation.com/files/351238/original/file-20200805-237-3qmk3f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=459&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/351238/original/file-20200805-237-3qmk3f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=459&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Melbourne’s Wesley Place commercial precinct is owned by a property trust.</span>
</figcaption>
</figure>
<p>If their values drop (and they are falling) it will affect all of us, especially those about to retire or already retired.</p>
<p>Until COVID-19, commercial properties were widely regarded as safe investments. They offered both reliable income streams and capital gains as population growth increased the value of scarce real estate.</p>
<p>With the return on government bonds falling <a href="https://theconversation.com/the-government-has-just-sold-15-billion-of-31-year-bonds-but-what-actually-is-a-bond-143598">below 1%</a> they ought to be becoming more attractive, but offices are empty, their future uncertain, high end shopping centres are receiving less traffic, and hotels have entire floors unused.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/351240/original/file-20200805-24-17539g9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/351240/original/file-20200805-24-17539g9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/351240/original/file-20200805-24-17539g9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=336&fit=crop&dpr=1 600w, https://images.theconversation.com/files/351240/original/file-20200805-24-17539g9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=336&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/351240/original/file-20200805-24-17539g9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=336&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/351240/original/file-20200805-24-17539g9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=422&fit=crop&dpr=1 754w, https://images.theconversation.com/files/351240/original/file-20200805-24-17539g9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=422&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/351240/original/file-20200805-24-17539g9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=422&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Brisbane’s 1 William Street is owned by a superannuation fund.</span>
</figcaption>
</figure>
<p>In July the number of mobile phones active in Sydney’s central business district was down <a href="https://www.roymorgan.com/findings/8486-roy-morgan-ubermedia-covid-19-movement-sydney-june-27-2020-202008040143">52%</a> on January and February. In Melbourne’s CBD, before the stage 4 lockdown, mobile phone traffic was down <a href="https://www.roymorgan.com/findings/8476-roy-morgan-ubermedia-covid-19-movement-melbourne-july-28-2020-202007270623">65%</a>. </p>
<p><a href="https://www.smh.com.au/business/companies/data-centres-in-hot-demand-with-remote-working-on-the-rise-20200804-p55ih6.html">Data centres</a> are among the few commercial property bright spots – we are moving more data – along with distribution centres and <a href="https://www.smh.com.au/business/companies/neighbourhood-malls-flourish-as-shoppers-stay-local-20200723-p55eto.html">regional shopping centres</a> – we are shopping online and closer to home.</p>
<p>Over the course of the year the values of commercial property trusts listed on the Australian Securities Exchange have slid <a href="https://www.asx.com.au/asx/share-price-research/company/DXS">29%</a>, <a href="https://www.asx.com.au/asx/share-price-research/company/GPT">32%</a>, <a href="https://www.asx.com.au/asx/share-price-research/company/MGR">34%</a>,<a href="https://www.asx.com.au/asx/share-price-research/company/SCG">48%</a>, <a href="https://www.asx.com.au/asx/share-price-research/company/VCX#company-top">52%</a>, and <a href="https://www.asx.com.au/asx/share-price-research/company/URW">69%</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/351242/original/file-20200805-24-p5j3b2.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/351242/original/file-20200805-24-p5j3b2.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/351242/original/file-20200805-24-p5j3b2.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=327&fit=crop&dpr=1 600w, https://images.theconversation.com/files/351242/original/file-20200805-24-p5j3b2.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=327&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/351242/original/file-20200805-24-p5j3b2.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=327&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/351242/original/file-20200805-24-p5j3b2.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=411&fit=crop&dpr=1 754w, https://images.theconversation.com/files/351242/original/file-20200805-24-p5j3b2.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=411&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/351242/original/file-20200805-24-p5j3b2.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=411&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Share price of GPT Group. GPT owns and manages retail, office and logistics properties.</span>
<span class="attribution"><a class="source" href="https://www.asx.com.au/asx/share-price-research/company/GPT">Source: ASX</a></span>
</figcaption>
</figure>
<p>For super funds with 8% of their assets in commercial property, a decline of 25% in values knocks 2% off their assets — A$54 billion across the industry as a whole.</p>
<p>In the only other big downturn since the advent of Australia’s superannuation system, the global financial crisis, commercial property offered the funds stability while shares were volatile. </p>
<p>Not so this time. The value of the commercial property is diving along with the stock market with just as uncertain a future.</p><img src="https://counter.theconversation.com/content/143824/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Offices, shopping centres, hotels, factories and logistics hubs make up 8% of the assets of super funds.Theodore Connell-Variy, Lecturer, School of Property, RMIT UniversityTony McGough, Senior Lecturer, Property, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1301912020-02-04T18:59:07Z2020-02-04T18:59:07ZSuperannuation isn’t a retirement income system – we should scrap it<figure><img src="https://images.theconversation.com/files/313032/original/file-20200131-41481-13oybyh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Discussions about Australia’s retirement income system typically begin by reciting the political slogan that there are “three pillars” to the system — the age pension, compulsory super, and voluntary savings. </p>
<p>It was the way the Abbott and Turnbull government’s <a href="https://slideplayer.com/slide/4872297/">tax inquiry</a> looked at retirement incomes, and a frame of reference used by this government’s <a href="https://treasury.gov.au/sites/default/files/2019-11/c2019-36292-v2.pdf">retirement income system review</a>.</p>
<p>Missing is discussion of what makes something a “retirement pillar”.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/313028/original/file-20200131-41495-b580y4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/313028/original/file-20200131-41495-b580y4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/313028/original/file-20200131-41495-b580y4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/313028/original/file-20200131-41495-b580y4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/313028/original/file-20200131-41495-b580y4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/313028/original/file-20200131-41495-b580y4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/313028/original/file-20200131-41495-b580y4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/313028/original/file-20200131-41495-b580y4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://slideplayer.com/slide/4872297/">Treasury tax white paper slideshow, 2015</a></span>
</figcaption>
</figure>
<p>It’s possible to think of other retirement pillars. Moving to India for a cheap lifestyle would be one. </p>
<p>Requiring retailers to <a href="https://www.fresheconomicthinking.com/2020/01/the-easiest-retirement-system-retiree.html">provide the elderly free goods and services</a>, with the cost absorbed in the prices paid by others could be another.</p>
<p>To be a pillar, something would have to allocate goods and services in retirement to people who are no longer earning wages.</p>
<p>In my <a href="https://www.fresheconomicthinking.com/p/scrap-superannuation.html">recently released report</a> I argue that superannuation fails this test.</p>
<h2>Super isn’t a retirement pillar</h2>
<p>Among other things, super can be spent many years before retirement, beginning anywhere from age <a href="https://www.ato.gov.au/Super/Self-managed-super-funds/Paying-benefits/Preservation-of-super/">55 to 60</a>, even though the retirement age specified the pension legislation is <a href="https://www.humanservices.gov.au/individuals/services/centrelink/age-pension/who-can-get-it">66 to 67</a>.</p>
<p>Many financial planners advise intending retirees to spend a lot of their super quickly in order to shelter it in income-test-exempt assets <a href="https://www.yourlifechoices.com.au/finance/property/how-upsizing-protects-your-pension">such as housing</a> and qualify for the pension.</p>
<p>The super system also can’t guarantee retirement incomes for people who are self-employed, casually employed, homemakers, have chosen their super fund unwisely or lost the proceeds in things such as online romance scams.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-uncomfortable-truth-about-super-theres-no-one-size-fits-all-contribution-130193">The uncomfortable truth about super: there's no ‘one-size-fits-all’ contribution</a>
</strong>
</em>
</p>
<hr>
<p>As a system, super comes with unnecessary financial risks, such as suddenly losing 21% of its funds, as happened between September 2007 and March 2009 during the global financial crisis.</p>
<p>It is better thought of as a growth-sapping, resource-wasting, tax-advantaged asset purchase scheme aimed at the already wealthy, which is <a href="https://theconversation.com/myth-busted-boosting-super-would-cost-the-budget-more-than-it-saved-on-age-pensions-119002">unlikely to do much</a> to reduce reliance on the age pension.</p>
<p>We would be better off abandoning it and letting workers spend or save their money as they see fit.</p>
<h2>The super system is inefficient</h2>
<p>The superannuation system employs <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/6291.0.55.003">55,000 people</a> at a cost of <a href="https://www.selectingsuper.com.au/superannuation-fees-fall-for-the-first-time-in-six-years">A$32 billion</a> per year to produce <a href="https://www.apra.gov.au/quarterly-superannuation-statistics">$40 billion</a> per year in retirement incomes. This is nearly as many people as the enlisted Australian Defence Force (58,000) with a similar total cost ($34 billion).</p>
<p>The rest of Australia’s entire welfare system, including administering the age pension, disability, unemployment benefits and Medicare, costs just $6 billion per year and employs <a href="https://www.servicesaustralia.gov.au/sites/default/files/2018/10/8802-1810-annual-report-web-2017-2018.pdf">33,000 people</a>, while providing <a href="https://www.servicesaustralia.gov.au/sites/default/files/2018/10/8802-1810-annual-report-web-2017-2018.pdf">$45 billion</a> in pension benefits.</p>
<h2>It directs money where it isn’t needed..</h2>
<p>Each year the superannuation system takes in <a href="https://www.apra.gov.au/quarterly-superannuation-statistics">$117 billion</a> and spits out <a href="https://www.apra.gov.au/sites/default/files/Quarterly%20Superannuation%20Performance%20Statistics%20September%202019_0.pdf">$80 billion</a> in payments (including lump sum withdrawals), leaving $38 billion in asset markets, sapping spending and economic growth. That’s roughly as much as the <a href="https://www.smh.com.au/business/saving-the-nation-20090203-7wsb.html">$40 billion</a> stimulus package introduced during the 2009 financial crisis. Unlike it, the super system depresses rather than stimulates the economy.</p>
<p>Unlike the super system, the age pension system is likely to stimulate the economy because it takes purchasing power away from high-income taxpayers with a relatively low likelihood of spending extra dollars to to lower-income pensioners with a high likelihood of spending them.</p>
<h2>…and away from those who do need it</h2>
<p>Unlike the age pension system, the super system can’t provide poverty relief, or broadly adequate retirement incomes.</p>
<p>For the bottom 40% of earners it does the opposite of smoothing income, making them poorer than they would have been while working, and somewhat <a href="https://theconversation.com/super-shock-more-compulsory-super-would-make-middle-australia-poorer-not-richer-120002">richer</a> than they would have been while on the pension and retired.</p>
<p>The <a href="https://treasury.gov.au/publication/p2020-51153">$18 billion</a> of tax breaks on super fund contributions and <a href="https://treasury.gov.au/publication/p2020-51153">$20 billion</a> of tax breaks on super fund earnings are predominately directed to <a href="https://treasury.gov.au/programs-and-initiatives-superannuation/distributional-analysis-of-superannuation-taxation-concessions">high income earners</a>.</p>
<p>In a comprehensive study released this week the Grattan Institute has demolished the claim that super contributions come out of employers pockets. Instead it finds that, on average, <a href="https://grattan.edu.au/report/no-free-lunch/">80%</a> of each super contribution comes out of what would have been wages.</p>
<h2>Here’s how to escape it</h2>
<p>Scrapping the system altogether would massively improve Australia’s economic performance, including the performance of our only true retirement income system, which is the age pension. </p>
<p>It can be done by forcing employers to pay what are now super contributions directly into wage accounts and allowing super fund holders to withdraw up to a maximum amount each year during a transition period, after which all super balances would receive no special tax treatment. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/5-questions-about-superannuation-the-governments-new-inquiry-will-need-to-ask-124400">5 questions about superannuation the government's new inquiry will need to ask</a>
</strong>
</em>
</p>
<hr>
<p>The tens of billions saved in the budget could be used to enhance the size and scope of the age pension. It could incorporate <a href="https://theconversation.com/fall-in-ageing-australians-home-ownership-rates-looms-as-seismic-shock-for-housing-policy-120651">appropriate rent assistance</a> and begin at age 60 instead of 67.</p>
<p>It’s possible. Certainly, there would be job losses, but in other industries we have come to accept that there is no point in continuing to pay people to do things that aren’t needed, and especially no point in making those payments compulsory.</p>
<p>It’d be one of the best things we could do to enhance the working of our economy.</p><img src="https://counter.theconversation.com/content/130191/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cameron Murray receives funding from the Henry Halloran Trust.</span></em></p>Super is inefficient, costly and directs money where it isn’t needed. There’s a way out.Cameron Murray, Research Fellow - Henry Halloran Trust, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1190012019-06-27T20:41:24Z2019-06-27T20:41:24ZAustralian household wealth has taken its biggest dive since the GFC, but things are looking up<p>The latest data from the Australian Bureau of Statistics confirms household wealth has fallen, on the back of falling house prices, in the past year. </p>
<p>But it’s not all bad news. There are signs of hope in the portents for the next six months. </p>
<p>During the first quarter of this year, the net worth of all Australian households rose 0.2% to A$10.2 trillion. Total household net worth in March 2019 was 0.7% lower than in March 2018, largely because of steep falls over the final six months of 2018. </p>
<p>The per capita annual decline was larger, falling by about 2.4%, because of population growth. This means the average wealth of Australians dropped by about A$9,500, from A$414,400 to A$404,900.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/281542/original/file-20190627-76734-mgok7i.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/281542/original/file-20190627-76734-mgok7i.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/281542/original/file-20190627-76734-mgok7i.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281542/original/file-20190627-76734-mgok7i.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281542/original/file-20190627-76734-mgok7i.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281542/original/file-20190627-76734-mgok7i.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=500&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281542/original/file-20190627-76734-mgok7i.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=500&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281542/original/file-20190627-76734-mgok7i.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=500&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">ABS</span></span>
</figcaption>
</figure>
<hr>
<p>This household “balance sheet event” – defined as an annual decline in household sector net wealth – is the third in the past 30 years. The other two were through the Global Financial Crisis of 2008 and immediately after.</p>
<p>Housing (land and dwellings) comprises 52% of household-sector assets. Superannuation comprises 24%. Property values fluctuate with real estate prices, while superannuation is highly exposed to volatility within the financial markets. </p>
<h2>Consumer spending</h2>
<p>The next chart highlights the relationship between changes in household net worth and spending on discretionary items and durable goods.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/281543/original/file-20190627-76705-1x1u3cv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/281543/original/file-20190627-76705-1x1u3cv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/281543/original/file-20190627-76705-1x1u3cv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=339&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281543/original/file-20190627-76705-1x1u3cv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=339&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281543/original/file-20190627-76705-1x1u3cv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=339&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281543/original/file-20190627-76705-1x1u3cv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=426&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281543/original/file-20190627-76705-1x1u3cv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=426&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281543/original/file-20190627-76705-1x1u3cv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=426&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">ABS</span></span>
</figcaption>
</figure>
<hr>
<p>But what is interesting is that consumer sentiment has not been significantly affected. </p>
<p>The following chart shows household net worth vs Westpac’s consumer sentiment data. This is the first major downturn in household net wealth in 30 years that has not coincided with weaker consumer sentiment. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/281544/original/file-20190627-76743-j7e3bv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/281544/original/file-20190627-76743-j7e3bv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/281544/original/file-20190627-76743-j7e3bv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=320&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281544/original/file-20190627-76743-j7e3bv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=320&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281544/original/file-20190627-76743-j7e3bv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=320&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281544/original/file-20190627-76743-j7e3bv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=402&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281544/original/file-20190627-76743-j7e3bv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=402&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281544/original/file-20190627-76743-j7e3bv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=402&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">ABS & Westpac</span></span>
</figcaption>
</figure>
<hr>
<p>It’s hard to know for certain why consumer confidence has remained relatively steady, but two things stand out. </p>
<p>First, the consumer financial adjustment has been orderly and deliberate as opposed to rapid and forced. It appears people have consciously adjusted spending and savings patterns to achieve long-term savings goals.</p>
<p>Second, there has been ongoing strength in the labour market. Despite falling wealth, people still have jobs and this reinforces confidence. </p>
<h2>Shares and housing stocks</h2>
<p>It is safe to say consumers will start spending more once they feel their asset position has stabilised. </p>
<p>Strong equity markets have played a big role in shoring up household wealth since the start of this year. As the next chart demonstrates, they could continue to do so over the period ahead.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/281545/original/file-20190627-76701-g5i77p.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/281545/original/file-20190627-76701-g5i77p.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/281545/original/file-20190627-76701-g5i77p.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=341&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281545/original/file-20190627-76701-g5i77p.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=341&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281545/original/file-20190627-76701-g5i77p.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=341&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281545/original/file-20190627-76701-g5i77p.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=428&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281545/original/file-20190627-76701-g5i77p.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=428&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281545/original/file-20190627-76701-g5i77p.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=428&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">ABS & Bllomberg</span></span>
</figcaption>
</figure>
<hr>
<p>But the big swing factor is house prices – specifically land values. The Reserve Bank’s interest rate cuts should help stabilise house prices over the second half of 2019.</p>
<p>Our last chart suggests this appears to have started, with auction clearance rates improving in recent months.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/281548/original/file-20190627-76722-ruuein.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/281548/original/file-20190627-76722-ruuein.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/281548/original/file-20190627-76722-ruuein.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=352&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281548/original/file-20190627-76722-ruuein.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=352&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281548/original/file-20190627-76722-ruuein.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=352&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281548/original/file-20190627-76722-ruuein.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=443&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281548/original/file-20190627-76722-ruuein.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=443&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281548/original/file-20190627-76722-ruuein.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=443&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">ABS, CoreLogic & Bloomberg</span></span>
</figcaption>
</figure>
<hr>
<p>This all suggests household wealth could start growing again in the second half of the year. That should go a long way to stabilising the economy.</p><img src="https://counter.theconversation.com/content/119001/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Warren Hogan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Household wealth in Australia has taken its biggest dive since the global financial crisis. But it’s not all doom and gloom.Warren Hogan, Industry Professor, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1024412018-10-19T02:48:04Z2018-10-19T02:48:04ZWith a billion reasons not to trust super trustees, we need regulators to act in the public interest<figure><img src="https://images.theconversation.com/files/240969/original/file-20181017-17686-1fv0mf0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The entrenched practice of retail superfunds using superannuation trust funds as profit-making enterprises undermines the integrity of the whole superannuation sector.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>“Did you think to yourself that taking money to which there was no entitlement raised a question of the criminal law?” Commissioner Kenneth Hayne asked Nicole Smith, who resigned as chair of NAB’s superannuation trustee, NULIS, a little more than a month before she fronted the banking royal commission.</p>
<p><a href="https://www.abc.net.au/news/2018-08-08/nab-didnt-consider-whether-wrongly-charging-fees-was-a-crime/10089990">“I didn’t,”</a> Smith replied.</p>
<p>Smith’s evidence related to NAB skimming A$87 million from superannuation accounts by charging 220,000 members “service fees” for which no service was provided. As head of the board of the superannuation trustee, it was Smith’s job to act solely in the best interests of the members. Instead she acted in the best interests of NAB.</p>
<p>Her admissions and the evidence from the royal commission that <a href="http://www.abc.net.au/news/2018-08-17/apra-under-fire-for-failing-to-police-superannuation-industry/10129612">more than $A1 billion</a> has been taken from superannuation accounts for no service show we need better supervision of the trustees who oversee <a href="https://www.superannuation.asn.au/resources/superannuation-statistics">more than A$2.7 trillion</a> in superannuation assets. </p>
<p>As senior counsel assisting the commission <a href="https://www.theguardian.com/australia-news/2018/aug/06/superannuation-trustees-left-alone-with-26tn-and-surrounded-by-temptation">Michael Hodge put it</a>:</p>
<blockquote>
<p>Trustees are surrounded by temptation, to preference the interests of their sponsoring organisations, to act in the interests of other parts of their corporate group, to choose profit over the interests of members, and to establish structures that consign to others the responsibility for the fund and thereby relieve the trustee of visibility of anything that might be troubling. </p>
</blockquote>
<p>The entrenched practice of retail super funds using superannuation trust funds as profit-making enterprises undermines the integrity of the whole superannuation sector. Focused regulatory action and oversight are imperative to protect it. </p>
<h2>Super duties</h2>
<p>Super trustees are subject to a range of stringent duties. </p>
<p>There are “equitable” duties, which arise from trustees being fiduciaries – responsible for acting in the best interests of the owners of the assets they manage. As fiduciaries, super trustees must avoid conflicts of interest and account for any profit they make. </p>
<p>As trustees specifically, they must act in the best interests of the beneficiaries and exercise powers conferred to them as trustees (trust powers) with real and genuine consideration. </p>
<p>All trustees are legally obliged to act in the best interests of the people whose money they are entrusted with. Superannuation trustees have an even greater obligation, because of the social importance of superannuation. The <a href="http://www.hcourt.gov.au/assets/publications/judgment-summaries/2010/hca36-2010-10-20.pdf">High Court has ruled</a> that public expectations mean superannuation trustees have “more intense” obligations than other private trusts. </p>
<p>This is underlined by the “statutory” duties of the <a href="https://www.legislation.gov.au/Details/C2017C00052">Superannuation Industry (Supervision) Act 1993</a>. It states directors of corporate superannuation trusts must perform their duties in the best interests of their beneficiaries, superannuation fund members.</p>
<p>The act also establishes supervision and oversight of super trustees by the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and the Commissioner of Taxation. </p>
<h2>Irregular regulation</h2>
<p>Yet clearly this oversight has been failing. The evidence from the royal commission is that many super trustees having been ignoring their duties. They have gone along with rubber-stamping unjustifiable fees purely because their parent institutions wanted the money. </p>
<p>In 2017 the prudential regulator was given the power to directly <a href="https://investmentmagazine.com.au/2017/08/there-is-already-nowhere-for-super-trustees-to-hide/">disqualify directors</a> of superannuation trustee corporations. It already had the power to do so by applying to the Federal Court. Over the past decade, however, it has sought <a href="http://www.abc.net.au/news/2018-08-17/apra-under-fire-for-failing-to-police-superannuation-industry/10129612">just one disqualification</a>.</p>
<p>The regulator’s deputy chair, <a href="http://www.abc.net.au/news/2018-08-17/apra-deputy-chair-helen-rowell-gives-evidence-at-banking-royal/10132502">Helen Rowell, has argued</a> this is due to APRA trying to protect the public interest, avoiding the risk of a run on a fund. But its inaction has arguably emboldened super trustees to ignore their duties because of the low risk of being penalised. </p>
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Read more:
<a href="https://theconversation.com/has-apra-just-outsourced-its-job-83411">Has APRA just outsourced its job?</a>
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<h2>Previous reform proposals</h2>
<p>The royal commission may result in criminal charges against banks and financial institutions. One outcome that must come is stronger oversight of super trustees. </p>
<p>Federal parliament already has before it <a href="https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=s1089">amendments to the Superannuation Industry (Supervision) Act</a> that include requiring individual super trustees to make annual written assessments about whether fees serve the interests of members. However, the bill has <a href="https://www.abc.net.au/news/2018-08-28/government-to-put-industry-super-laws-on-the-backburner/10173854">reportedly been shelved</a>. </p>
<p>It is therefore critical the royal commission recommend strong action, including reforms proposed by previous inquiries into the financial services sector.</p>
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Read more:
<a href="https://theconversation.com/the-problem-with-australias-banks-is-one-of-too-much-law-and-too-little-enforcement-103996">The problem with Australia's banks is one of too much law and too little enforcement</a>
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<p>These include the <a href="http://fsi.gov.au/publications/final-report/chapter-2/super-governance/">Financial System Inquiry</a>, which recommended in 2015 that super funds must have a majority of independent directors on their trustee boards. It also proposed new civil and criminal penalties for directors failing to act in the best interests of fund members. </p>
<p>Additional reforms might include: </p>
<ul>
<li><p>establishing a specific conduct regulator for corporate superannuation trustees</p></li>
<li><p>making it mandatory for ASIC to prosecute superannuation trustees and related entities (such as banks) for duty breaches, with much higher penalties </p></li>
<li><p>stronger oversight over responsibilities that corporate trustees outsource to third parties</p></li>
<li><p>mandatory reporting of corporate fee structures, with regular review to determine if these are justified. </p></li>
</ul>
<p>The trust remains the most appropriate legal mechanism to manage savings accumulated over a long time. Much stronger behavioural controls and civil penalties are necessary to ensure super trustees act honestly and in good faith for the benefit of the beneficiaries. That they are, in short, trustworthy.</p><img src="https://counter.theconversation.com/content/102441/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Samantha Hepburn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We rightly expect trustees of superannuation funds to do their jobs. Much stronger behavioural controls and civil penalties are needed to ensure they do.Samantha Hepburn, Director of the Centre for Energy and Natural Resources Law, Deakin Law School, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/756922017-04-10T20:15:27Z2017-04-10T20:15:27ZExplainer: shadow banking and where it came from<p>The term “shadow banking” often has connotations of dodgy lending and borrowing practices, out of reach of regulators. And while its use may contribute to risk, in reality shadow banking does serve a purpose in our economy, one that is increasingly connected to our day-to-day lives.</p>
<p>Shadow banking affects not only the property market, but also superannuation, central banking policy and, increasingly, fiscal and social policy. It refers to the non-bank financial intermediaries that supply services similar to commercial banks. </p>
<p>This system provides funding for credit, by converting risky and long-term assets that can’t be sold quickly or easily (like mortgages) into a money-like, short-term debt (like mortgage-backed securities). </p>
<p>Shadow banking is not a bank in the sense that we know it but more a strategy or accounting technique. A range of institutions deploy these strategies including superannuation funds, insurance companies and <a href="http://www.corrs.com.au/publications/tgif/federal-court-sets-the-standard-with-standard-and-poors/">local governments</a>. Asset managers, like Macquarie Group in Australia and BlackRock in the United States, also employ these techniques. </p>
<p>In short, shadow banking provides institutions the means to create accounting entities to isolate risks, transfer profits, avoid regulation and increase the range of money-like financial products available for investment. </p>
<h2>Where shadow banking came from</h2>
<p>There are both supply and demand reasons for the emergence of the shadow banking system. Shadow banking has emerged as a means for financial firms to bypass regulation (for example by using tax havens) and increase opportunities for financial innovation and speculative activity. </p>
<p>Banks have an incentive to lower the number of risky assets on their balance sheets, in order to reduce the amount of capital they need to hold to cover these risks. Because of this the banks create off-balance sheet entities (assets that use shadow banking).</p>
<p>Shadow banking also offers a means for investors to access different forms of money across the financial system. Institutional investors trade in volume, and cannot physically <a href="https://www.financialresearch.gov/working-papers/files/OFRwp2014-04_Pozsar_ShadowBankingTheMoneyView.pdf">“handle billions in cash in the form of currency”</a>.</p>
<p>This type of finance is normally best met by Treasury bills and government bonds (which presently offer low returns) and repurchase agreements - a form of short-term borrowing in these sorts of bonds. The shadow banking system then fills the gap in the absence of availability of other secure assets.</p>
<p>However these supply and demand explanations only tell part of the story. </p>
<p>The global environment is characterised by a <a href="https://www.nytimes.com/2016/01/24/magazine/why-are-corporations-hoarding-trillions.html">small population</a>) of individuals and institutions with large pools of money seeking safe returns; and, cash-poor individuals with stagnant incomes and a need for credit. One example of this is the growing investment class of securities based on private debt, for example credit cards, mortgage debt and <a href="http://www.smh.com.au/small-business/finance/pretty-close-to-extortion-mars-kelloggs-and-fonterra-pushing-loans-on-small-business-20170331-gvb56f.html">small business loans</a>.</p>
<p>Low inflation across the globe and governments not spending or encouraging investment in assets that offer good returns, means investors are limited in the ways they can currently make money.</p>
<h2>The problems with and solutions for shadow banking</h2>
<p>Shadow banking has made the task of governments more difficult. However it would be mistaken to assume that governments do not have some control over shadow banking. All levels of government are already linked to aspects of shadow banking whether they like it or not. </p>
<p><a href="http://www.theaustralian.com.au/business/legal-affairs/councils-win-landmark-case-against-standard-and-poors-abn-amro/news-story/ec62f52b82a904467f0019635aa54773">Local governments</a> were stung by exposure to shadow banking practices in the lead up to the global financial crisis. Councils were persuaded to invest in a structured financial product that offered unrealistic, and deceptive returns. </p>
<p>The NSW government is currently following shadow banking trends by borrowing and <a href="http://www.afr.com/street-talk/macquarie-gets-westconnex-funding-talks-underway-20160620-gpnt9p">partnering with asset managers</a> to build long-term infrastructure like Westconnex and the Sydney Light Rail. </p>
<p>At the national level, the Rudd-Gillard Government followed trends that originated in shadow banking by developing institutions like the <a href="http://www.cleanenergyfinancecorp.com.au/">Clean Energy Finance Corporation</a> and the National Broadband Network. Both policies tried to diversify the investment base in Australia, but have been held up by the Abbott-Turnbull governments.</p>
<p>Australia can’t do much to remedy global uncertainty. However, policies it pursues do link into shadow banking practices in multiple ways. </p>
<p>Policies that erode the standard employment relation and <a href="http://www.smh.com.au/federal-politics/political-news/former-rba-governor-bernie-fraser-says-penalty-rate-cut-will-produce-inequality-not-jobs-20170406-gvezd1.html">cut pay rates</a> increase consumer demand for <a href="http://www.news.com.au/finance/money/costs/payday-loan-mountain-to-top-1-billion-as-irresponsible-lending-skyrockets/news-story/e875ffc54b981d25df6fd3b779708824">short-term credit</a> products. This increases private debt for consumers, but feeds its attractiveness into an asset class for institutional investors.</p>
<p>Reserve Bank of Australia Governor, Phillip Lowe, was surprisingly strident in his <a href="http://www.abc.net.au/news/2017-02-24/philip-lowe-house-committee-economics/8299714">critique</a> of the cut to corporate tax rates and negative gearing last week. Reading between the lines you can sense frustration with the lack of attention on how Australia stands to benefit or lose from current global investment trends. </p>
<p>Institutional investors don’t need more piles of cash (via company tax cuts), they need ways to invest it. If you think about Australia from the perspective of institutional investors, it lacks a diverse range of assets (besides property!).</p>
<p>Australia only registers <a href="https://industry.gov.au/Office-of-the-Chief-Economist/Publications/Documents/Australian-Innovation-System/Australian-Innovation-System-Report-2014.pdf">17 specialised goods industries compared</a> with 35 for New Zealand and 44 for Canada. Consequently, real estate and infrastructure debt are some of the only things available to sop up the pile of <a href="https://www.ft.com/content/9ab40034-a4db-11e6-8898-79a99e2a4de6">cash</a> currently sloshing around the global economy. </p>
<p>This leads to <a href="http://www.brokernews.com.au/news/breaking-news/smsfs-and-property-a-ticking-time-bomb-224584.aspx">claims</a> that self-managed super funds (those run by institutional investors) are potentially exacerbating Sydney and Melbourne’s already expensive property market. </p>
<p>There are three growing areas of shadow banking: catastrophe bonds, which bet on the risk of natural disasters; renewable energy infrastructure banks, and <a href="http://www.telegraph.co.uk/business/2017/04/09/legal-general-biggest-house-builder-never-heard/">build-to-rent</a> investments. These examples offer the two sides of shadow banking.</p>
<p>Catastrophe bonds are parasitic in the way they provide finance - betting on the destruction from disasters. Renewable energy and build-to-rent show the potential for using finance for potentially progressive outcomes, to provide sustainable energy and housing. Australia could harness this progressive side of finance to create a more diverse economy.</p><img src="https://counter.theconversation.com/content/75692/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Huon Curtis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Shadow banking provides investors with the means to isolate risks, transfer profits, avoid regulation and increase the range of money-like financial products available for investment.Huon Curtis, Senior Research Analyst, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/701402016-12-31T20:32:38Z2016-12-31T20:32:38ZHow changes noted in the 1992-93 cabinet papers affect our super today<p>While superannuation changes were debated all through 2016 we were often reminded that the superannuation system is still maturing. Many workers retiring today were not members of a superannuation scheme for much of their working life. </p>
<p>The cabinet papers of 1992-93 released today by the National Archives of Australia give an insight into how, and why, the system was originally designed; and how some of those decisions are reflected in the current policy debate.</p>
<h2>A new super scheme</h2>
<p>The Superannuation Guarantee came into force from July 1 1992. In that year about 64% of employees had access to superannuation including white collar workers, public servants and workers covered by an award based scheme. </p>
<p>Award superannuation had been in place since 1987, following the Australian Council of Trade Unions (ACTU) agreement to trade off a wage increase for an occupational superannuation scheme. Industrial awards required employers to contribute 3% of wages for a worker paid under the award to superannuation instead of being received in the pay packet.</p>
<p>Under the 1987 agreement a further 3% was to be introduced between 1991 and 1993, however this didn’t happen because of the failed <a href="http://www.airc.gov.au/safetynet_review/decisions/J7400.htm">1991 National Wage Case</a>. As a result, the ACTU, supported by former Treasurer Paul Keating who was then on the backbench, called for a legislative scheme.</p>
<p>The Superannuation Guarantee was announced in the 1991 Federal Budget. It required employers to contribute to superannuation for all workers earning more than A$450 per month. The guarantee as legislated was 3% (or <a href="https://www.legislation.gov.au/Details/C2004C07278">4%</a> if payroll exceeded A$1 million), increasing to 9% by the year 2000. </p>
<p>In February 1992, amid slowing economic conditions, the cabinet considered whether to defer the implementation of the levy by six months.</p>
<p>Not surprisingly the guarantee was not popular with employer groups, who regarded it as an additional cost imposed during a recession. This was because the new guarantee was estimated to increase labour costs by 1.4% in the first year, mostly for employers whose employees had not been previously covered by award superannuation, although there was an expectation that future wage increases would be moderated by the amount of the levy. </p>
<p>On the other hand, the ACTU was strongly opposed to any deferral, as there was already a division between those employees who did have access to a super guarantee and those who didn’t. The 1992 cabinet minutes record concerns that the ACTU would increase wage claims that year if the guarantee did not proceed as scheduled, and that this would threaten the eventual implementation of a legislated superannuation scheme. </p>
<p>Cabinet decided not to defer the implementation and the bills were introduced into the parliament on April 2 1992. When a similar set of circumstances arose in 2014, the <a href="http://jbh.ministers.treasury.gov.au/media-release/026-2014/">Abbott government chose not to follow</a> this precedent, and deferred the proposed increase.</p>
<h2>The 10% rule</h2>
<p>In 2016 the <a href="http://www.budget.gov.au/2016-17/content/glossies/tax_super/downloads/FS-Super/07-SFS-Tax_deduction_for_personal_contributions-161109.pdf">“10% rule” was abolished</a> to improve flexibility by removing inconsistency of treatment for contributors, however this was also the reason for the introduction of the rule. </p>
<p>The <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s290.160.html">rule limited tax deductions</a> for superannuation paid by a person who earned more than 10% of their income from a source already covered by the super guarantee. </p>
<p>A person who is primarily self employed, or receives less than 10% of their income from employment sources, could claim an income tax deduction for personal super contributions. But an employee, who does not pay income tax on superannuation contributions paid on their behalf by an employer, couldn’t claim a tax deduction for additional personal contributions. </p>
<p>Prior to 1992, the income tax deduction for personal contributions was limited, with different limits applying to self-employed, employees covered by award superannuation or employees contributing to a non-award scheme.</p>
<p>The proposal before cabinet in June 1992 removed the distinction between employees covered or not covered by award schemes, denying tax deductibility for personal contributions. In this context the 10% rule was a safe harbour that ensured a person who was mostly self-employed did not lose the tax deduction for their superannuation contributions. </p>
<p>The abolition of the rule this year was not bipartisan: Labor and others opposed it. However the labour market has changed, and in the more casualised and flexible work environment of 2016 workers move between employment, contract work and self-employment far more than in 1992. The safe harbour of 1992 has now become an impediment to retirement savings.</p>
<h2>Regulation of super contributions</h2>
<p>Federal regulation of superannuation funds was limited before the introduction of award superannuation. This was exemplified in tax schemes where employers “contributed” on behalf of employees who were unaware of their entitlements, or who only became entitled after meeting onerous service and contribution requirements. </p>
<p>The Superannuation Industry Supervision legislation was enacted in 1993 to protect employee superannuation entitlements.</p>
<p>Under the new framework, the responsibility for employee benefits was placed with the employee, allowing employees to change between funds, protecting employees from fraud by the trustee and limiting control of the fund by the employer. Arguably this portability has also led to a structural change in superannuation funds, as the accumulation of funds in one account has replaced separate defined benefit funds as the default form of superannuation. </p>
<p>One of the <a href="http://www.pc.gov.au/research/completed/superannuation-post-retirement">current policy challenges</a> is how to use these types of accumulated funds to provide a tax effective income stream, like those delivered by defined benefit funds.</p>
<h2>Gender superannuation gap</h2>
<p>Another consequence of an employment based retirement savings system is the gender pay gap is carried on into retirement. As noted in the 2016 Senate Committee Report, <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Economic_security_for_women_in_retirement/Report">A Husband is Not A Retirement Plan</a>, women and men experience work very differently, and this is reflected in their retirement savings.</p>
<p>This issue was also identified back in 1992 in the <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=reports/1992/1992_pp98report.htm">government report Halfway to Equal</a>. The recommendations from this report included designing the superannuation scheme that takes into account women’s broken work patterns and superannuation funds ensuring that women retain membership rights while on maternity leave. </p>
<p>Cabinet papers show both recommendations were supported by the government at the time. These reforms did ensure that women’s contributions were preserved, but the structural problem of the link between retirement savings and earnings was not addressed in the design of the system. </p>
<p>The current superannuation gender gap was foreseeable. The remedies implemented by the government in 1992 protected entitlements rather than addressing the root cause: the superannuation guarantee legislation is gender blind, and this gender blindness has continued to the current day. </p>
<p>Looking back at the decisions of 1992, the superannuation guarantee scheme has served the purpose it was designed to. Most working Australians now have some superannuation to supplement the age pension. </p>
<p>The next radical reform to superannuation, which allowed massive injections into superannuation savings, was in 2007. I look forward to reading the cabinet papers for those discussions.</p><img src="https://counter.theconversation.com/content/70140/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Helen Hodgson receives funding from AHURI and ARC. Helen is a member of the Social Policy Committee and a Director of the National Foundation for Australian Women, and is on the Tax and Superannuation Advisory Panel of ACOSS. Helen was a Member of the WA Legislative Council in WA from 1997 to 2001, elected as an Australian Democrat. She is not a current member of any political party.</span></em></p>The changes to superannuation discussed in the 1992-93 cabinet papers shaped the system we have today for better and worse.Helen Hodgson, Associate Professor, Curtin Law School and Curtin Business School, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/687462016-11-15T03:36:01Z2016-11-15T03:36:01ZThe government shouldn’t use super to help low-income savers<p>Compulsory superannuation payments help many middle-income earners to save more for retirement, but super is simply the wrong tool to provide an adequate support for low-income earners. Our analysis shows top-up measures targeted at helping this group save for retirement are poorly targeted and an expensive way to do so.</p>
<p>Australia’s superannuation lobby <a href="http://www.afr.com/personal-finance/superannuation-and-smsfs/super-industry-wants-provision-for-comfortable-lifestyle-written-into-law-20160920-grkh62">wants</a> the government to define in law that the purpose of Australia’s A$2 trillion super system is to provide an adequate retirement income for all Australians. The government <a href="http://www.afr.com/business/banking-and-finance/financial-services/kelly-odwyer-sticks-to-simple-purpose-for-superannuation-20161110-gsmxof">disagrees</a>: it <a href="http://www.kellyodwyer.com.au/address-at-the-association-of-superannuation-funds-of-australia-asfa-conference-2016-gold-coast/">confirmed instead</a> that the purpose of super is to supplement or substitute for the Age Pension. </p>
<p>The government is right: super can’t do everything. Income from the superannuation of low-income earners will inevitably be small relative to the value of the Age Pension. The government boost to super aimed at low income earners is not tightly targeted. And fees will eat up a material portion of government support provided through superannuation. </p>
<p>With the Age Pension and Rent Assistance, government already has the right tools for assisting lower income Australians. </p>
<h2>Government provides two super top-ups for low income earners</h2>
<p>The Low Income Superannuation Contribution (LISC), introduced by the Labor government in 2013, puts extra money in the accounts of low-income earners who make pre-tax super contributions. Under the <a href="https://www.ato.gov.au/General/New-legislation/In-detail/Super/Introducing-a-Low-Income-Superannuation-Tax-Offset/">LISC</a>, those earning less than A$37,000 receive a government co-contribution of 15% of their pre-tax super contributions, up to a maximum of A$500 a year.</p>
<p>The Abbott government was set to <a href="http://www.smh.com.au/federal-politics/political-news/mining-tax-repealed-after-deal-struck-with-palmer-20140902-10blcr.html">abolish</a> the LISC, but the Turnbull government now plans to retain it, renaming it the Low Income Superannuation Tax Offset (LISTO), at a <a href="http://www.budget.gov.au/2016-17/content/glossies/tax_super/downloads/FS-Super/06-SFS-LISTO-160920.pdf">budgetary cost</a> of A$800 million a year. </p>
<p>The <a href="https://www.ato.gov.au/Individuals/Super/In-detail/Growing/Super-co-contribution/">super co-contribution</a>, introduced by the former Howard government in 2003, puts extra money in the accounts of low-incomes earners who make post-tax super contributions. It boosts voluntary super contributions made by low-income earners out of their post-tax income by up to A$500 a year, at a <a href="https://annualreport.ato.gov.au/sites/g/files/net1861/f/ATO_AR_15-16_Vol1-Full.pdf">budgetary cost</a> of A$160 million a year. </p>
<h2>Super can’t help many low income earners</h2>
<p>Superannuation is a contributory system: you only get out what you put in. And low-income earners don’t put much in.</p>
<p>Their wages, and resulting super guarantee contributions, are small and their means to make large voluntary contributions are <a href="http://grattan.edu.au/wp-content/uploads/2015/11/832-Super-tax-targeting.pdf">even smaller</a>. Their super nest egg will inevitably be small compared to Australia’s relatively generous Age Pension. </p>
<p>For example, a person who works full time at the minimum wage for their entire working life and contributes 9.5% of their income to super would accumulate super of about A$153,000 in today’s money (wage deflated), making standard assumptions about returns and fees. If the balance were drawn down at the minimum rates, this would provide a retirement income of about A$6,500 a year in today’s money. </p>
<p>By contrast, an Age Pension provides a single person with A$22,800 a year. For someone who worked part time on the minimum wage for some or all of their working life, super would be even less, but the Age Pension would be pretty much the same. </p>
<h2>Top-ups are not tightly targeted to those that need them</h2>
<p>The LISC and the super co-contribution aim to top up the super and thus the retirement incomes of those with low incomes. But our research shows about a quarter of the government’s support leaks out to support the top half of households. </p>
<p>Whereas eligibility for the pension is based on the income and assets of the whole household, including those of a spouse, eligibility for superannuation top ups depends only on the income of the individual making contributions. That means the top ups also benefit low-income earners in high-income households. A far better way to help low-income earners is to increase income support payments such as the Age Pension. </p>
<p>Super top ups provide some help to households in the second to fourth deciles of taxpayers. But they do very little for the bottom 10% of those who file a tax return. </p>
<p>These households, many of which earn little if any income, only receive about 7% of the benefits of top ups. A further set of households file no tax returns – typically because welfare benefits provide most of their income. Very few of them receive any material super top up. </p>
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<h2>Super fees erode super top ups</h2>
<p>Super fees will erode a sizeable share of the funds in the super accounts of low-income households, as a result of super top ups. Our research shows that super fees levied on most workers receiving the LISC erode between 20 and 25% of the value of the extra funds at retirement. This finding is consistent with <a href="http://grattan.edu.au/wp-content/uploads/2014/04/811-super-sting.pdf">previous Grattan work</a> on super fees. </p>
<p>But super fees do not usually erode super top ups as much as they erode contributions to super in general. Fees eat up a <a href="http://fsi.gov.au/files/2014/12/Superannuation-fees.pdf">higher proportion of the super savings of people with low balances</a> because most fees have a fixed component that’s the same whatever the account balance. In effect the personal super contributions of low-income earners absorb that fixed component, which is typically the same whether or not government tops up the account.</p>
<p>However for those with very low super savings and sporadic employment, fixed fees can erode the value of their super top ups. That’s because at some point in their lives, their super balances can drop close enough to zero and fixed administration fees eat into the value generated by the top up.</p>
<h2>Some top up is still needed for low income earners</h2>
<p>Superannuation compels people to lock up some of their earnings as savings until retirement. High-income earners are compensated for this delayed access because their contributions are only taxed at 15%, rather than their marginal rate of personal income tax. </p>
<p>Without the LISC, which reduces the tax rate on their compulsory super contributions to zero, those earning between A$20,542 and A$37,000 would receive relatively little compensation for locking up their money in superannuation. The 15% tax on contributions would be only slightly less than their 19% marginal tax rate. </p>
<p>And for those earning less than A$20,542, the absence of a LISC would take them backwards when they made super contributions taxed at 15% rather than keeping the money in their pocket tax free. </p>
<p>Reflecting these concerns, the LISC, reborn as LISTO, appears crucial to gaining support in the Senate from <a href="http://www.alp.org.au/making_superannuation_fairer_fact_sheet">Labor</a> or the <a href="http://greens.org.au/sites/greens.org.au/files/Greens%27%20plan%20for%20progressive%20tax%20for%20super.pdf">Greens</a> for reforms to super tax breaks. Continuing the offset is a reasonable price to pay to <a href="http://grattan.edu.au/report/a-better-super-system-assessing-the-2016-tax-reforms/">unwind billions of dollars in unnecessary super tax breaks</a>. </p>
<h2>Better ways to provide adequate retirement incomes for low-income earners</h2>
<p>However super top ups should not be expanded. It is too hard to target them tightly at those most in need, and super fees can eat up their value. </p>
<p>Instead, a targeted boost to the Age Pension would do far more to ensure all Australians have an adequate retirement. But there is an even better way to improve the retirement incomes of those most in need. </p>
<p>As <a href="http://grattan.edu.au/wp-content/uploads/2016/01/Submission_Grattan-Institute_Economic_Security_Women_in_Retirement2.pdf">previous Grattan research</a> shows, retirees who do not own their own homes are the group at most risk of being poor in retirement. A A$500 a year boost to rent assistance for eligible seniors would be the most efficient way to boost retirement incomes of the lowest paid, at a cost of A$200 million a year. Only 2% of it would flow to the top half of households, with net wealth of more than A$500,000.</p>
<p>By contrast, a wholesale A$500 boost to all Age Pension recipients would cost A$1.3 billion, with half the benefit going to households with net wealth of more than A$500,000, mainly because the <a href="http://grattan.edu.au/wp-content/uploads/2014/03/801_Balancing_Budgets.pdf">home is exempt from the Age Pension means test</a>. </p>
<p>In defining an objective for Australia’s superannuation system, the government is right that super is not a universal pocket knife. Super top ups are a costly way to ensure that every Australian enjoys an adequate retirement.</p><img src="https://counter.theconversation.com/content/68746/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities.
Grattan Institute also receives funding from corporates and individuals to support its general activities as disclosed on its website.
John Daley, Brendan Coates and William Young do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their employment by Grattan Institute
</span></em></p><p class="fine-print"><em><span>Brendan Coates and William Young do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Super is the wrong tool to provide an adequate support in retirement for low-income earners. Our research shows top-up measures to help this group are poorly targeted and too expensive.John Daley, Chief Executive Officer, Grattan InstituteBrendan Coates, Fellow, Grattan InstituteWilliam Young, Associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/660492016-09-27T03:14:17Z2016-09-27T03:14:17ZElectricity infrastructure like Ausgrid is a safe bet for super funds<p>The latest bid for a share of the New South Wales electricity distributor, Ausgrid, from two big Australian superannuation funds is part of a wider investing trend where infrastructure is the new black.</p>
<p>AustralianSuper and IFM Investors announced an unsolicited offer of <a href="http://www.afr.com/business/infrastructure/industry-super-funds-in-backdoor-ausgrid-bid-20160923-grn86u">a reported A$10 billion</a> after two much larger bids from Chinese interests were controversially disallowed by Treasurer Scott Morrison <a href="http://thenewdaily.com.au/money/superannuation/2016/09/26/ifm-and-australiansuper-bid-for-ausgrid/">on national interest grounds</a>.</p>
<p>When big infrastructure assets come up for sale in Australia now, there are increasingly only three types of bidders: Chinese state-owned firms, large Canadian pension plans and local superannuation funds.</p>
<p>Superannuation funds have traditionally invested the bulk of their members’ contributions in the share market. The most profitable companies are usually those listed on stock exchanges and holding shares is widely seen as the best way to ensure long term investment success. </p>
<p>But stock markets can also go down, bringing down superannuation balances with them, as many Australians discovered for the first time during <a href="http://www.news.com.au/finance/superannuation/crisis-crushes-boomers-retirement-dreams/story-e6frfmdi-1111117901011">the global financial crisis</a>. Investing in infrastructure has developed as an increasingly popular alternative to holding most of a superannuation fund’s investments in shares.</p>
<p>The returns available in infrastructure are comparable to those available on the share market but they have the added advantage of being more stable. Airports, toll roads, ports and utilities (including electricity infrastructure) <a href="https://www.oecd.org/finance/private-pensions/42052208.pdf">have become key targets for superannuation fund managers</a>, both in Australia but also increasingly in Europe, North America and Asia. </p>
<h2>Who are AustralianSuper and IFM Investors?</h2>
<p>With an investment portfolio of more than A$100 billion, AustralianSuper is the country’s largest superannuation fund. Formed in 2006 after the merger of the Australian Retirement Fund (ARF) and the Superannuation Trust of Australia (STA), AustralianSuper has a long history of investment in infrastructure. </p>
<p>Long-term ARF and STA trustee (and former ACTU secretary) Bill Kelty is a particular advocate of infrastructure investment. As AustralianSuper CEO Ian Silk acknowledges, much of AustralianSuper’s investment success can be ascribed to <a href="http://www.unsworks.unsw.edu.au/primo_library/libweb/action/dlDisplay.do?vid=UNSWORKS&docId=unsworks_12592">Kelty’s emphasis on infrastructure</a>. </p>
<p>Pairing up with AustralianSuper is IFM Investors. Managing more than A$72 billion worth of infrastructure assets, the super fund is the country’s leading player in the infrastructure sector. </p>
<p>IFM was formed in 2004 (as Industry Funds Management) and is the successor to the Development Australia Fund (DAF). It is owned by 29 industry superannuation funds and <a href="http://www.oecd.org/pensions/pensionfundinfrastructureaustraliacanada2013.pdf">invests on a global scale</a>. </p>
<p>DAF was launched in 1991 by the ACTU in collaboration with the AMP Society and the Australian Chamber of Manufacturers. Chaired by Ian Court, the head of Cbus (the building and construction industry superannuation fund), DAF led the push of the industry funds into infrastructure investment. On behalf of the industry funds, <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media/pressrel/1OK20%22">DAF partnered with AMP in the privatisation</a> of airports, purchased toll road companies and invested in the renewable energy sector.</p>
<p>Like other businesses owned by the industry funds, IFM is run on a cut-price “all profits to members” basis. It buys up infrastructure assets on behalf of the industry funds, allowing their millions of members to profit from government privatisations.</p>
<h2>Super funds leading infrastructure investment</h2>
<p>The Canadians have only recently cottoned on to the idea that investment in airports, shipping terminals and electricity assets is ideal for retirement-savings schemes. Members of superannuation funds expect their nest eggs to grow over the 30 years or more of their working lives. Infrastructure investments match long term financial returns with the long term investment horizon needed by a pension or superannuation fund. </p>
<p>Rather than being sold to foreign firms or wealthy investors, the involvement of the industry funds in infrastructure privatisations means that all working Australians can benefit.</p>
<p>However the movement of the industry funds into infrastructure has been widely criticised by Coalition politicians. In 2007, the then <a href="http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=transcripts/2007/193.htm&pageID=&min=phc&Year=&DocType=2">Treasurer Peter Costello dismissed infrastructure investments</a> as “union pet projects…like rats eyeing the grain silo”. </p>
<p>Infrastructure privatisations are controversial. But selling electricity distributors to superannuation funds means that everyday Australian workers can profit from owning them. Unlike investing in derivatives and bonds, infrastructure investment is a form of direct ownership.</p><img src="https://counter.theconversation.com/content/66049/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bernard Mees consulted for the Australian Institute of Superannuation Trustees and is also a member of the consultative committee for UniSuper. </span></em></p>Australian superannuation funds are joining the trend to invest in infrastructure because it’s safer for industry members.Bernard Mees, Senior Lecturer in Management, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.