Should the Government control how your super is invested?

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There is currently no specific direction provided by Government regulation (ignoring very specialised situations) on where a super fund must invest money. There is a requirement instead that the Trustee ensured the fund assets are appropriate to meet its obligations to fund members (that’s my interpretation of far more technical wording).

Over time there have been a number of calls from all corners of the political spectrum for superannuation assets to be invested into one area or another. Even if these calls are well-intentioned, they are most likely based more on the desire to prop up a sector of the community rather than from any consideration of the fund members whose money is being allocated.

This is a poorly understood area, and one that will hopefully be free of bureaucratic meddling for some time yet.

There is an argument that superannuation assets accumulated through generous taxation concessions should have to give some of those concessions back to society. I am no tax expert but surely that is a convoluted argument, if it is a valid argument at all? The taxation concessions were designed to encourage the accumulation of superanuation money. Surely the fact that the objective has been achieved is the reward for the concessions?

There was a time when superannuation funds (and life insurance companies) did have specific directions. When i was young in the industry, there was a 30/20 Rule in place. It said that 30% of a funds assets had to be invested into public securities and of that 20% had to be in Commonwealth securities if the funds were to keep their tax concessional status.

The RBA suggests there are currently $855b of super assets outside of Life Offices (measured to March 2009. i have ignored super assets inside Life Offices as the breakdown is not clear on the RBA site. Total Life Office funds are $199bn). Here is how the RBA sees this money as being invested currently.

The RBA figures for super investments in Australia to March 2009

The RBA figures for super investments in Australia to March 2009

To bring this into perspective… If the old 30/20 rule was instituted (again, ignoring life office super) then that would mean $256bn would need to be invested into public securities or which $51.3bn would need to be in Commonwealth securities. This would involve shifting $225bn of cash, deposits, short term securities and other long-term securities into public securities. That would be an awful lot of money taken out of the private system.

As an interesting aside, this level of total assets would come close to funding the Federal Government deficits that are expected to reach their peak over the next few years.

Imagine if only 2% of this money were allocated to, say, alternative energy research. That would be $17.1bn available to help Australia become a world leader in alternative energy technology – and perhaps help reduce our reliance on carbon intensive systems?

See how easy it is to come up with viable and arguable uses for large pools of money? The point that is missed in all this is that the money does not belong to the Government. It belongs to the fund members. They have either forgone salary rises or invested their own personal savings into an area that they would like to see invested for their long term retirement needs. They have not done this with the idea that their money would prop up currently trendy/needy sectors.

The key to understanding all of this is to remember that there is no such single animal as “superannuation” in Australia. There are a huge number of superannuation funds, each with different characteristics that are (hopefully) aimed specifically at meeting their particular members’ interests. If there are wholesale directions made on where money should be invested then that will skew the outcome for every one of those funds. In some cases that may be positive but there is not way of being sure of that.

It could be argued that most members do not know where their money is invested anyway. That is a pretty demeaning argument, and should be ignored. It could be argued that it is a reasonable proposition to have all funds diversified into a number of areas and that a small diversification to a particular area should not dramatically affect returns. Perhaps. However, that is applying a single approach to every superannuant in Australia and that is simply not good logic.

There is a great deal that can and probably should be done about the investment of super fund money in Australia. However, that is more a case of member education than it is a case for allowing vested interest groups access to the pool of superannuation accounts.

Let’s hope logic prevails.

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