ISA calls for super to be used for capital investment
The superannuation sector should be repositioned from a savings pool into a source of long-term capital investment, according to Industry Super Australia (ISA).
In its submission to the draft terms of reference for the Financial Services Inquiry, ISA claimed the finance sector had become less efficient at capital formation and there was still further action to be taken to improve the efficiency of the finance industry.
According to research conducted by ISA, every $1 of resources allocated to the finance sector in 1990 resulted in $3.50 of capital formation, with the latter figure dropping to $1.50 by 2012.
As a result of this the ISA said the inquiry should look at how the finance sector should be reconnected to the real economy, with superannuation being used as a second pillar alongside, but independent of, the banking sector.
"The inquiry is an historic opportunity to reposition finance so that it focuses on its most important function, the transformation of Australia's strong savings pool into long-term capital investment, especially in areas that are known to drive productivity growth," ISA chief executive David Whiteley said.
"In a global context Australia's financial system is unique. Thanks to superannuation we have among the highest per capita savings pool in the world which could act as a second pillar of funding in the economy, separate from the banking sector."
Whiteley said the two pillars would need to be kept separate to create diversity in the sources of funding, but also to minimise the risk carried by either sector as well as reducing institutional complexity which would arise if the two were mixed.
Whiteley pointed to the stability of the superannuation sector as a whole during the global financial crisis compared with the banks which were given government guarantees on bank deposits and bank bonds.
"Super funds didn't need these guarantees and in fact acted as a macroeconomic stabiliser, investing into the market especially while share prices were falling," Whiteley said.
He stated that given this stability, the inquiry should examine how superannuation could play a greater role and pointed to investments made by industry super funds as examples.
"It is important that in bringing the second pillar into reality, the inquiry think about how Australia can be the leader of global financial services. This will create opportunities for super funds to engage in direct investment in firms and projects through primary markets using a buy and invest approach, with limited intermediation and secondary markets. It has been a successful model for industry super funds, particularly in respect of infrastructure."
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