The superannuation industry is ready with billions of dollars in “patient capital” to back the Federal Government’s green energy plans, according to Wayne Swan, chair of the $65 billion construction industry super fund, Cbus.
In an interview with Investment Magazine, ALP president and former Federal Treasurer said the sector could also look at investing in areas such as critical minerals if the policies were right.
“When you look at the scale of the transition we’re going to have to make from fossil fuels to renewables in the electricity sector, and more generally, super is going to play a big role in investing in those areas,” he said.
He said many superannuation funds were already investors in green energy.
“But if we get much clearer market signals out of the government and we can get new structures, the super funds will be active participants,” he said.
“Many of us are already active in particular projects, but if it was to become more systematic and there was more of a government framework, then we would be interested.”
As Federal Treasurer in the previous Labor government, Swan established the Clean Energy Finance Corporation (CEFC) in 2013 appointing Sydney businesswoman, Jillian Broadbent, as its inaugural chair to help finance clean energy projects. The corporation has survived and prospered despite an election promise by the incoming Abbott government to abolish it.
Swan said critical minerals was another area which the superannuation sector could support.
“Australia has a capacity to be an energy superpower which brings with it the possibility of cheaper power for industry,” he said.
“Given that we also have one of the world’s biggest reserves of critical minerals, it would make sense that the country becomes more involved in the processing of critical minerals.”
“You are seeing, from both federal and state governments, initiatives to ensure that we have further processing of critical minerals in various parts of the country.
“Somewhere in that pipeline there may well be a role (for some form of investment by super funds) if it is in our members’ best interests.”
Net zero by 2050 with earlier targets also set
Like many other super funds, Cbus has its own targets to reduce the carbon emissions in its investment portfolio with most committing to the Paris agreement target of getting to net zero by 2050.
Cbus has a goal of being net zero by 2050 including a 45 per cent reduction in its absolute portfolio emissions by 2030 and goal of getting to net zero across its property portfolio by 2030.
Swan announced, in parliament, initiatives to boost the role of superannuation including backing the insertion of employee contributions in all industrial awards, said the superannuation system had played a critical role in supporting Australian economy times of stress including the global financial crisis and the Covid pandemic.
“Now it can do a lot more in the best interests of its members, and the best interests of the nation, in assisting the country to make the next big transition which is the transition to clean energy.”
Swan said the recent election of the Labor Government would give the superannuation sector some “breathing space” to “future proof the fundamentals of the system” – without having to worry about potential moves by the government to undermine it.
He said the last minute election campaign move by former Prime Minister Scott Morrison to allow first home buyers to take up to $50,000 out of their superannuation to buy a house was another attempt by his government to “dismantle” the superannuation system by undermining the essential element of preservation.
“Hopefully we can get on with the job of strengthening the foundations of what is a very good system – free from the constant government attacks which have characterised the last nine years when it comes to industry super,” he said.
“We have got some breathing space now to be at our best and have a laser-like focus on member interests and member returns, free of all the propaganda and politically inspired attacks on the system.”
Low income earners most affected by changes
Swan said the people who had suffered the most from the “undermining” of the superannuation system by measures such as with the former Federal Government’s early access schemes during Covid, were those with the lowest incomes, such as members of Cbus.
“We are the fund where people generally will have lower balances when they retire because our members have less secure employment and therefore, on average, lower balances over time.”
“They are the ones who are crushed by these proposals for early withdrawals. No matter how modest they are, they have a dramatic impact in the long run on their retirement income.”
Swan said the Federal parliament should pass legislation to define the purpose of the national superannuation system which would ensure its focus was to improve outcomes for members.
He said superannuation was not the answer to every financial problem in the community but was meant to help people save for a decent retirement.
There should be a “mature national discussion” around the purpose of superannuation “free of the threat of dismantling key parts of the sector”, he said.
He also supported calls for some “refinement” of the Your Future, Your Super annual performance tests for superfunds which came into operation last year.
Under the system, funds which fall below their performance benchmarks, taken over an eight year period, twice in a row can be prevented from receiving any new member contributions.
The system has been criticised for having benchmarks which are backward looking and deter funds from making long term investments in areas such as clean energy which may take some time to become profitable.
Need for mature discussion about performance test
“We need to have a mature discussion about the performance test,” he said.
“I have no fundamental objection to measuring the performance of funds in the interests of transparency but there are some perverse effects of the current performance test -which have the potential to punish funds who are making long term investments in the best financial interests of their members- which need to be refined.
“We don’t object to competition or comparison, but we just have to get the measures right.”
Mr Swan said the success of the compulsory superannuation system had exceeded the expectations of its founders which included Labor Party and union leaders.
In his speech on the budget of 1995, Swan estimated that the superannuation system could have assets of around $2 trillion by 2020. The system currently has some $3.4 trillion in assets.
“As far back as 1995, I knew that superannuation and Medicare were going to be two of the great national institutions,” Swan said.
“But not even I thought, when it started out, that it would turn out to be this spectacular success and such a driver of our economy.”
Swan said one of the next big challenges for the super system was handling the move into the retirement phase as baby boomers stopped working.
The super fund sector is also planning for the introduction of the Retirement Incomes Covenant on July 1 which requires funds to spell out their strategy for helping their members navigate their move into retirement.
Swan said the system was now in the “deaccumulation phase,” where an increasing number of members were retiring and drawing on their savings.
“As the Callaghan committee recommended, this retirement area is now a much more important area for the funds to concentrate on.”
Swan said Cbus was working on plans for its strategy.
He said he expected that super fund strategies around retirement would include more provision of advice around retirement as well as some specific new products for retirees, but he did not want to pre-empt any announcements by his fund.
“We’ve got some exciting announcements to make in the near future about supporting members in their retirement but I’m not in a position to say much more about it at the moment.”