The Henry and Cooper reviews of the superannuation industry should consider the implications for portfolio construction of having too many active and engaged members, including the prospect of funds being forced to adopt a more conservative asset allocation which coud ultimately hurt their returns, a major industry body has argued.

Speaking at an Australian Institute of Superannuation Trustees (AIST) lunch in Sydney on Friday, David Whiteley, executive manager of Industry Super Network questioned the extent to which the super industry “dodged a bullet” due to member inertia.

He said 1 per cent or less of industry fund members switched out of balanced funds and into cash during the financial crisis, and those members that stayed the course were better off this year versus those that switched at the bottom of the market.

“There was no run on funds, which meant the system wasn’t frozen and we have retained confidence in superannuation,” he said.

“People, whether by design or pure inertia and disengagement stuck by the superannuation system.”

Whiteley said the Henry and Cooper reviews should consider to what extent the super industry wants “ten or 11 million active investors” in super during a financial crisis.  

“The implications for asset allocation are profound,” he said. “Funds would have to restructure their portfolios to be much more conservative to appeal to members, people who have concerns about investing in equities, and that will undoubtedly lead to lower long-term returns.”

Meanwhile Fiona Reynolds, chief executive officer of AIST, criticised the government’s blanket co-contribution cap which she said disadvantaged two groups of people – those with lots of money, and those people catching up on their super contributions.

“If the government wants to address the equity issue they could limit [the cap] based on account balance,” she said.

Reynolds noted that the Cooper review was considering trustee knowledge, skills and training at a sector level, and said AIST was in the process of writing new fund governance guidelines which included a minimum continued professional development requirement for trustees and introduced trustee duties and legal responsibilities.

Gerard Noonan, trustee director at Media Super, warned the administration of the super industry, which had a structure similar in size to Australia’s social security system, should not be “too crimped for capital” in the industry’s efforts to reduce super fees.

He said the industry was “better off
dealing with the investment management industry, which seems to me not to have
taken a hit”, and called for an end to the funds management industry’s practice
of charging fees based on a percentage of funds under management.

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