Here are some revealing statistics from a recent Productivity Commission report. A female born in 2012 can expect to live, on average, to 94; her male counterpart, to 92. The number of Australians aged 75 or more is expected to rise by four million between 2012 and 2060, increasing from 6.4 per cent of the population to 14.4 per cent by 2060. Finally, there is now about one centenarian for every 100 babies born; by 2060, that’s expected to be 25.

In a very real sense this is a good news story: we are living longer, healthier lives. But it also means retirement planning becomes that much more important. Certainly it was top of mind at the SMSF Professionals’ Association of Australia (SPAA) when we made our submission to the Financial System Inquiry (FSI).

More specifically, we looked at several alternative investments that self-managed super fund (SMSF) members, at the very least, now find difficult to access – notably infrastructure, corporate bonds and housing finance. (In regards to housing finance, it does not mean SMSFs being able to use superannuation to buy their principal place of residence. SPAA is adamant that mixing housing policy (as well as health and aged care) with retirement income policy leads to confused outcomes and potential abuse as retirement savings are directed away from their sole purpose.)

In making these recommendations, it was critical to be cognisant of what SMSF members actually want in terms of investment, especially in the retirement phase. In our opinion, these are some of the defining characteristics:
• Flexibility and control over their investments.
• Direct investment instead of indirect.
• Conservative – 28 per cent cash holdings.
• Liquidity/capital preservation (especially in the pension phase).
• Members moving towards the pension phase (or there already) are looking to manage longevity risk by accessing long-term investment options with low volatility, moderate yield relative to inflation and moderate capital growth.

Infrastructure investment could tick all these boxes – if certain barriers were removed. The first problem is the high dollar threshold to investment and the illiquid nature of the required investment. Second, ASIC’s interpretation of the wholesale/retail test means that an SMSF has retail status unless the fund has $10 million in assets, even if the trustee passes the wholesale client tests applying to individuals. This threshold issue is not only a problem for SMSFs investing in infrastructure; it also applies to public equity offerings, corporate debt offerings, bio-tech and venture capital investments.

What needs to happen is for there to be a capacity to unitise investment in infrastructure projects to smaller investments for SMSFs (for example, 25,000 one-dollar units), as well as being able to issue small-scale infrastructure bonds. In addition, a secondary market in these products would allow SMSFs to manage liquidity risks.

A corporate bond offering higher-yielding debt than government bonds is another option for SMSFs. (It’s not just SMSFs that find it difficult to access Australian corporate bonds; the Australian corporate bond market is small, with most companies going offshore to raise debt.) To date, SMSFs have shown scant interest in any type of debt securities, with only 0.76 per cent of SMSF assets invested in this asset class compared with 28.45 per cent in cash or term deposits at December 31, 2013.

So there is a genuine need to both deepen and open up access to the corporate bond market for SMSFs. 
It would allow trustees to diversify their low-risk holdings from cash and term deposits into other low-risk, steady-return products.

Housing finance was our third alternative. Superannuation funds, including SMSFs, could play a vital role in financing housing, particularly as superannuation outgrows the banking sector. It could take the form of shared appreciation mortgages or shared equity arrangements, providing superannuation funds with an excellent opportunity for an investment with low investment correlation to existing asset classes, thereby enhancing portfolio construction.

As the numbers show, SMSF members are most comfortable with cash and term deposits, blue chip Australian equities (especially if they come with franking credits) and, to a lesser extent, property. It’s not difficult to work out why. Tax benefits drive members to equities offering franking credits, and they understand and are comfortable with all these investments.

But this is not to argue that this investment paradigm is set in stone. Listed investment companies and exchange-traded funds are examples where members are looking for alternatives to invest in and wanting to gain a better understanding of them via advice and information. They just need the opportunity.