Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 33

A pause for reflection

After many years in the hurly burly of Australia’s rapidly evolving superannuation system, seven months in the UK have given me an opportunity to ‘catch my breath’ and listen to a diverse range of viewpoints from international funds and managers. Visits to the US, Europe and Asia meeting various PRI stakeholders has given me a wider perspective of international developments and a better understanding of where Australia is placed on the global stage.

Recognition of strong retirement incomes system

Throughout my travels, the key strengths of Australia’s retirement incomes system are both widely recognised and a model for emulation. An early start on universal mandating of employee contributions, strong regulatory and governance systems, a robust mutual sector, healthy competition at the consumer level, a public policy focus on outcomes and intermediation over commercial interests, and continued development of expertise in funds management, place the Australian model in a league of its own.

For a young country with a retirement incomes system still decades away from maturity, there is widespread recognition of what has been conceived and achieved in just 30 years. Our peers also admire that Australia has both the political foresight and means to increase its savings pool to 12% by 2020 while other countries wrestle with deep and pressing economic challenges.

Australia’s steady ascent through international league tables in national savings and adroit sidestepping of the GFC is also admired. Local funds are now amongst the world largest and enjoy increasing international exposure. The growing profile in funds management, particularly infrastructure is also being noted.

Focus on sustainability and fiduciary duty

What is puzzling to many of our international friends however is the continuing and polarising domestic debate about climate change. Despite some local beliefs to the contrary, the world has moved on. Discussion often centres on sustainability risks and fiduciary duty, understanding the international trend towards carbon pricing and the impact this will have on returns and asset values, and assessing carbon exposure in various portfolios and asset classes over the longer term.

Economic volatility, improvements to global investment governance to reduce the risks of instability and achieving sustained returns for members overlay with climate concerns. As a recent report from AXA Investment Managers noted, over the next 10 years, ESG considerations, socially responsible investment and impact investment are set to spread more deeply from equities portfolios to property, infrastructure, and other asset classes.

So it is with some trepidation that I have watched the apparent hardening of out-dated attitudes in the run up to our national election, and subsequently.

From the flexibility of Opposition, the launch of emissions trading trials in China in June and the commencement of the South Korean trading scheme in 2015 can safely be sidelined, as can the existing market based emissions schemes in New Zealand and California. For a newly elected Government taking office this month in the world’s 12th largest economy, the reality of our major Pacific Rim trading partners in pricing carbon cannot be ignored.

Also on the domestic front, recent confirmation of a ‘Son of Wallace’ inquiry into financial services, creeping ominously in scope to include superannuation, raises the unwanted spectre of ongoing regulatory instability. The sometimes obsessive focus on the mutual fund sector and its successful model of member-focused governance fuels suspicion that under the guise of competition a giant ‘land grab’ to benefit established and powerful vested interests is part of an unseen future agenda.

It must be remembered that the fundamental public policy objective of Australia’s superannuation system is not competition but maximising member’s retirement benefits. The nation’s future demography that first drove the establishment of our universal system from the late 1980s has not changed.

Encouragingly, flexibility and member choice now exist, as the rapid growth in the SMSF sector demonstrates. A healthy and competitive market dynamic with multiple players at a consumer and retail level has been created. This sits in sharp contrast to the increased concentration and market domination that has been hallmark of our banking sector and other parts of the financial services industry in the last two decades.

The longer view 

As Australia’s savings pool grows well into its second trillion, macro reforms aimed at increasing the internal efficiency of investment markets and raising the proportion of capital allocated to productive investments over short term trading, speculation and arbitrage are worth pursuing by any new government.

Aside from the national dividend this would generate, measures that ameliorate volatility and over-concentration on financial engineering align with the desire for longer term thinking around capital utilisation amongst institutional investors and responsible corporations.

Internationally, pension and mutual funds looking well into this new century see sustainability and environmental risks emerging in a range of investment considerations. Externalities are increasingly being brought to book in both the boardroom and balance sheet, sometimes abruptly, as global insurers and re-insurers will attest. The challenges are profound, for funds and managers everywhere. Australian funds and trustees, asset consultants and managers face a delicate balancing act in assessing sustainability risks and value drivers over their traditional investment horizons and beyond.

Looking to the 2020s and 2030s is no longer a blue sky exercise in a multi-trillion system: it is a necessity. For the new Government, sailing resolutely and indefinitely against international winds on climate and carbon may not be the best approach.

Australia’s retirement incomes system has been buffeted by international events and a rigorous period of reform. It is time to adapt to the changes in the pipeline and a measured consideration across the industry of the new environmental, social and governance (ESG) tools and thinking. Responsibility also comes with government. Coalition voices in favour of moderation, national interest and a traditionally cautious approach to radical change in retirement policy need to be both heard and supported.

It is the industry’s task to reach out and find those voices.

Fiona Reynolds is the Managing Director of the United Nations-supported Principles for Responsible Investment Initiative (PRI), appointed in February 2013. She is the former CEO of the Australian Institute of Superannuation Trustees (AIST).  

RELATED ARTICLES

SMSFs can lend to some relatives

banner

Most viewed in recent weeks

How much super is enough?

We cannot see into the future, but here are some general guidelines on how much to save in super, and then how much you can spend to enjoy a good retirement. Start as soon as possible.

How to include homes in the age pension assets test

A reader speaks out about the inequity of ignoring own homes in the assets test for the age pension, plus a proposal on how it could work politically. Take our survey on the merit of the policy. 

OK Boomer: fessing up that we’ve had it good

The pre-Boomer generations faced global wars and depressions, but Australians born after 1946 have enjoyed prosperity. Superannuation, education, strong markets and surging property prices locked in gains.  

Four reasons to engage a financial adviser

The value of financial advice is increasingly questioned after the Royal Commission and changes to advice business models, but the case for financial advice for many people remains strong.

Should you buy CBA PERLS XII Capital Notes?

CBA's latest PERLS offer is directly offered to hundreds of thousands of investors who already hold CBA shares or other PERLS securities. How does it compare with the rest of the hybrid market? 

Latest Updates

Retirement

OK Boomer: fessing up that we’ve had it good

The pre-Boomer generations faced global wars and depressions, but Australians born after 1946 have enjoyed prosperity. Superannuation, education, strong markets and surging property prices locked in gains.  

Investment strategies

Young women are investing more in shares

Young woment are showing increasing confidence in the sharemarket, promising a better future than the Boomers and Gen X women who hold significantly less assets than males of their generation.  

Investment strategies

Shorting deserves more respect

A fund manager that can short sell stocks with weak investment characteristics while reinvesting the proceeds in long positions in preferred stocks has a high degree of flexibility.

Economy

Policymakers fear cutting stimulus can lead to recession

Prolonging a recovery with stimulus could lead to a worse slump later. Even today, policymakers are haunted by actions taken in 1937 which led to a loss of production and jobs and a falling GDP.

Shares

Bank reporting season scorecard for FY19

Our annual scorecard for Australian banks shows earnings were hit by remediation costs and slow credit growth, but they are in good health and look attractive versus other listed companies. 

Sponsors

Alliances

Special eBooks

Specially-selected collections of the best articles 

Read more

Earn CPD Hours

Accredited CPD hours reading Firstlinks

Read more

Pandora Archive

Firstlinks articles are collected in Pandora, Australia's national archive.

Read more