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).  

 


 

Leave a Comment:

RELATED ARTICLES

SMSFs can lend to some relatives

banner

Most viewed in recent weeks

Retirement is a risky business for most people

While encouraging people to draw down on their accumulated wealth in retirement might be good public policy, several million retirees disagree because they are purposefully conserving that capital. It’s time for a different approach.

The perfect portfolio for the next decade

This examines the performance of key asset classes and sub-sectors in 2024 and over longer timeframes, and the lessons that can be drawn for constructing an investment portfolio for the next decade.

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

The challenges with building a dividend portfolio

Getting regular, growing income from stocks is tougher with the dividend yield on the ASX nearing 25-year lows. Here are some conventional and not-so-conventional ideas for investors wanting to build a dividend portfolio.

How much do you need to retire?

Australians are used to hearing dire warnings that they don't have enough saved for a comfortable retirement. Yet most people need to save a lot less than you might think — as long as they meet an important condition.

Welcome to Firstlinks Edition 594 with weekend update

It’s well documented that many retirees draw down the minimum amount required and die with much of their super balances untouched. This explores the reasons why and some potential solutions to address the issue.

  • 16 January 2025

Latest Updates

Investment strategies

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

9 ways to fix Australia's housing crisis

Decades of policy failure have induced a fall in housing affordability. Unless painful changes are made, an underclass will emerge in a society that is supposed to boast the one of the world's highest standards of living.

Shares

Australia: why the chase for even higher dividend yields?

Australia boasts one of the world's highest dividend yielding sharemarkets, providing substantial benefits to investors and retirees. Despite this, individuals often stretch for even more yield, to their detriment.

Shares

MIGA – Make Income Great Again

The Australian sharemarket seems to be rewarding a number of unprofitable companies on the promise of future riches. Yet profits and cashflows still matter, as a recent case study of Domino's Pizza shows.

Shares

Mapping future US market returns

Exceptional returns from the US sharemarket over the past decade have driven by sales growth, margin expansion, rising valuations, and dividends. Predicting future returns requires careful consideration of these factors.

Shares

Read this before you go all in on US equities

US equities rule global markets, but history is littered with examples of markets that seemed invincible — until they weren’t. Diversification will be key for investor portfolios going forwards.

Property

What impact would scrapping stamp duty have on housing?

Increasing house prices pose challenges for housing affordability. This investigates the impact of stamp duty on the property market, and how removing the tax could help address several key issues.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.