THE $1.4 trillion superannuation sector is facing fresh criticism for its heavy exposure to risky assets such as shares and property, with a new report calling for an overhaul of the investment strategies used by most funds.
Australian super funds have the highest share of their holdings invested in growth assets in the world, new rankings published by Mercer showed yesterday.
With the typical super fund holding more than 70 per cent of its assets in growth assets, the report marked down Australia's super system for "high level of exposure to volatile assets", which it said left investors bearing too much risk.
The dangers for members were heightened in Australia's compulsory super system because it was a defined contribution scheme, the report said.
Instead, it said a larger weighting towards safer assets such as corporate bonds and fixed interest was likely to provide "a better long-term outcome for members".
Despite the criticism, the nation's super system was ranked the third best in the world in the latest Mercer index of global pension funds, up from fourth place last year. This rise was mainly due to improving conditions on sharemarkets.
After former Treasury secretary Ken Henry this year ignited a debate in the industry, the report sparked fresh calls for members to make sure their fund's allocation suited their needs.
The managing director of SuperRatings, Jeff Bresnahan, defended the heavy investment in growth assets, and said it was up to members to change the weighting of their plan if they wished.
"Yes [they're] volatile, but they also provide long-term benefits, which are going to provide higher retiree benefit for those in the system," he said.
"For 20 years, Australians have had the opportunity to become involved in their super, yet the majority choose not to," he said.
But the report's author, David Knox, said the finding was a reminder for fund trustees to take a broader view to ensure their asset allocation strategies suited all members especially those approaching retirement.
"We think that some countries that are only invested in fixed interest or bonds probably aren't giving their members the best deal. But we think Australia probably needs to ease off a little bit," Dr Knox said.
"Because Australia has more investment in growth assets like equities, property and infrastructure than other countries, then the system is a little bit more volatile," Dr Knox said.
The report gave the best scores to countries with 40 to 60 per cent of their pension savings in growth assets. Dr Knox predicted Australia's allocation to growth assets would dwindle as more baby boomers retired.
In response to Dr Henry earlier this year, fund managers argued that equities tended to perform better over several decades. But critics say this is little consolation for people approaching retirement who have been hit by several years of sharemarket volatility.
The typical balanced super fund has made rolling returns of just 0.3 per cent in the past five years, SuperRatings figures show.