On a global scale, Australia’s Gross Domestic Product ranks 17th; our stock market capitalisation sits eighth of the world’s economies. And, thanks to our system of universal superannuation, we have the fourth largest managed funds industry in the world.
At approximately $1.3 trillion, total superannuation assets have become larger than our total GDP and are growing at a faster rate. This places an enormous obligation on fund managers, administrators and advisers to achieve the best result with these assets – in the national interest as well as in the interests of their clients.
Economists, politicians and our federal treasury place great emphasis on achieving a strong rate of economic growth. It makes a big difference to the national welfare as does the performance of our superannuation industry. An extra one-half percent on the average annual return of Australia’s super funds will add $6.5 billion to our annual wealth creation. With our current growth this figure could mean as much as an extra $20 billion annually by 2020, which makes the performance of our superannuation industry arguably the single most important economic variable facing this country.
For example, a small improvement in net returns of super could offset the potential costs of reducing carbon emissions by 60 percent by the year 2050 (estimated at 0.1 percent of GDP annually).
Theoretically, competition will optimise economic efficiency and performance, leading to an inflow of funds and an increasing market share for the best performing players in the market.
In practice, poor information and structural inefficiencies often prevent the optimal allocation of funds. Professional planners and others in the advisory business have a critical role to play in ensuring that the most effective super funds get the highest support. In this way not only are clients’ benefits maximised but so too is the nation’s long-term interest.
Garry Weaven is Chair of Industry Funds Management, an investment service provider to the superannuation industry, a director of Members Equity Bank, which is owned by 40 superannuation funds, and a director of Pacific Hydro.