Super must be well governed but not over-regulated: Financial Services Council chief John Brogden

The significance of superannuation for the wealth of individuals and as a national asset demands that super funds are transparent and well governed, according to John Brogden, chief of the Financial Services Council.

Superannuation is already larger than GDP, and he suggests in the years to come will dwarf it.

“Outside the family home, superannuation is the largest asset Australian individuals own,” Brogden says.

Australia has $1.8 trillion worth of funds under management, making it the fourth-largest pool of funds in the world, and $1.3 trillion of this is superannuation. The increase in compulsory superannuation contributions from 9% to 12% – passed through the House of Representatives last year and likely to pass the Senate early this year – will cause this to grow to $3 trillion by 2020 and $5.5 trillion by 2030.

Brogden says 75% of Australians have some superannuation assets and the average balance is $154,000.

“Despite the significance of superannuation to the Australian economy and to individual Australians, more than 50% of workers – particularly the young and those with low incomes – have at best little interest in superannuation, and in too many cases no interest or understanding of the savings on which they will rely for their long retirements,” he wrote in the Australian Financial Review.

“Much of the focus from the government’s Stronger Super reforms have centred on costs and efficiencies.

“Appropriately, the focus has turned to transparency and governance.

“Considering super’s mandatory nature, raising governance and transparency to adequate levels is overdue.

“The Australian Securities and Investments Commission and the funds management industry have begun a process to give fund members the ability to know more about where their personal superannuation is invested,” he says.

“Portfolio holdings disclosure allows individual members to contact their superannuation funds and, based on the investment strategy they have chosen – or in the case of MySuper members, the strategy applied to them – find out meaningful details about where the relevant fund managers have invested their savings.

“It is critical to acknowledge that the interest of fund members in the detail of their investment portfolios will vary. Some will be interested in the exact breakdown and value of their portfolios – not only the investment strategy, but the individual categories, or indeed the companies or properties in which they are invested. Some will want to have a day-to-day hands-on interest in their portfolio allocation. These people will continue to establish self-managed super funds.”

But Brogden advises that listing every investment in every company or asset would be so complex as to be meaningless to most fund members and the cost of implementing and maintaining systems to provide up-to-date or intricately detailed investment records for individual members would add real costs.

“We must get the right balance between disclosure, cost and complexity.

“The Financial Services Council has been buoyed by the pragmatic approach from ASIC chairman Greg Medcraft,” he says.