Super funds: Why Australia's retirement savings system is something to envy

World-class pension fund reportedly worth AU$3.5 trillion

Super funds: Why Australia's retirement savings system is something to envy

Superannuation has returned to discussion after the final version of the Labor Party’s draft policy platform revealed to have included the federal administration’s plans to add superannuation to paid parental leave (PPL) payments and increase affordable housing. Earlier drafts of the 2023 policy had scrapped the plan. According to a Bloomberg report, the final version will be debated at next month’s conference.

Australia’s retirement savings system, also called Super, was put into place in 1992 during the Keating Labor government. It required all employers in Australia to pay a percentage of an adult worker’s gross pay into the employee’s superannuation account.

In a Reuters report, the required percentage is currently at 11% and will max out at 12% in 2025. The employees also can make individual contributions. Reuters columnist Antony Currie noted, “The scheme is so big that the tax on contributions by employers and individuals brings in some 5% of federal tax revenue, making it the fifth-largest source of income for Canberra’s coffers.”

Super funds, as discussed in a Forbes Advisor commentary, have several types to which retirement savings can be allocated, including industry funds, retail funds, public sector funds, corporate funds, and self-managed superannuation funds (SMSF).

When choosing the right type of superannuation fund, an Australian worker would typically look into performance, fees, and insurance.

According to the Australian Prudential Regulation Authority (APRA), around 40% of the AU$2.4 trillion stash has been allocated in overseas stocks and bonds.

AustralianSuper is the largest superannuation fund in Australia, which manages AU$300 billion in assets. The second largest is the Australian Retirement Trust (ART), which oversees over AU$240 billion in assets. AustralianSuper owns 70% of Coal Drops Yard, a part of the King's Cross Central development scheme in London, England. Meanwhile, ART owns stakes in Heathrow and Edinburgh airports.

With the Super continuing to grow at huge rates, Australian Prime Minister Anthony Albanese’s federal administration found the opportunity to finance affordable housing. Daniel Andrews, premier of Victoria, had also proposed to add industry super funds to build renewables.

APRA has started its assessments on the returns of these potential investments against a benchmark each year. Recent regulatory changes have made sure that institutions falling short of the benchmark by 50 basis points or more for two years will be suspended from taking on new clients. There are also local regulators looking into how asset managers value their unlisted assets.