Australian super favours equity investment
Australian superannuation invests as heavily in equities as three of the largest pension systems in the world, according to research by Mercer.
The research, carried out for the Financial Services Council (FSC), showed Australia is on par with the UK, USA and Canada when it comes to the proportion of private pension assets invested in equities.
"The regular criticism that superannuation is overweight in equities is not borne out when we compare our system with large pension systems in the US, UK and Canada," FSC CEO John Brogden said.
The Mercer report compared Australia with 11 other private pension schemes around the world including Canada, Chile, China, Denmark, Hong Kong, Japan, South Korea, Netherlands, Switzerland, the UK and the USA.
It showed Australia, UK, USA and Canada have invested 35 to 50 per cent of their assets in equities. Australian funds have 50 per cent of assets invested in equities.
The report also found Australia should be expected to have a high allocation of superannuation investment in equities as 11 per cent of superannuation funds under management are in defined benefit schemes.
"Some countries have a significant level of guaranteed pensions or annuities in payment, which require matching assets to these liabilities. Most of the assets suitable for matching are bonds and other fixed income investments," the report said.
A factor that sets Australia's superannuation system apart from other pension systems is Australia's lower allocation towards fixed interest.
Australia has a higher ratio of younger to older fund members compared to other countries, making it plausible that a scheme with a younger demographic invests more in growth assets.
"As the superannuation system matures and baby boomers move into retirement, the proportion of funds invested in equities is likely to decline as retirees demand lower risk assets with more stable income streams," Brogden said.
Also, Australia's small corporate bond market, along with home country bias means there is a higher allocation to equities for want of other asset classes in which to invest.
Recommended for you
AMP is to launch a digital advice service to provide retirement advice to members of its AMP Super Fund, in partnership with Bravura Solutions.
Unveiling its performance for the calendar year 2024, AMP has noted a “careful” investment in bitcoin futures proved beneficial for its superannuation members.
SuperRatings has shared the median estimated return for balanced superannuation funds for the calendar year 2024, finding the year achieved “strong and consistent positive” returns.
The second tranche of DBFO reforms has received strong support from superannuation funds and insurers, with a new class of advisers aimed to support Australians with their retirement planning.
