THE head of the federal Treasury has warned that self-managed super funds have become so popular they could soon test the integrity of the country's superannuation system.
Dr Martin Parkinson says investors need to understand that self-managed super funds (SMSFs) might offer more flexibility and potentially greater returns, but they can also come with "increased risk".
He said fund managers needed to ensure they were offering investors "value for money", a concern that had "clearly been a driver" of the growth of SMSFs.
"SMSFs have an important place in the market for those investors wanting control over their investments," Dr Parkinson told the Association of Superannuation Funds of Australia . on Wednesday.
"However, this flexibility raises some issues for all sectors of the industry to consider ... [in the future] greater transparency on the implications of operating a SMSF will be important as will be the increased accountability requirements of SMSF trustees," he said.
The architect of the superannuation system, former prime minister Paul Keating, attacked super fund managers for investing too heavily in the stockmarket.
He said Australians expected unrealistically high returns from their funds, which encouraged managers to take too many risks.
He called for an increase in super fund contributions, from 12 to 15 per cent, but said the additional contribution should be placed in a long-term, government-run fund and devoted to healthcare, because people were living far longer than expected when the superannuation scheme was set up.
"Instead of 15 per cent wage equivalent going simply to retirement accumulations, managed by the private funds management industry, I'm suggesting that an alternative may be 12 per cent under the SG [superannuation guarantee] being managed privately and 3 per cent collected under a modified SG being managed within a government longevity insurance fund."
He said Australia's super funds had about 2 times the exposure to the stock market as Europe's, meaning they were too exposed to the most volatile asset class.
He said fund managers reaped benefits in the form of increased fees when investment decisions performed well, but were not exposed to downside risk when the market plunged.
"This is pretty squalid," he said.
Politics, business and unions needed to redesign the system to cope with an ageing population.
Mr Keating praised the Opposition Leader, Tony Abbott, and the shadow treasurer, Joe Hockey, for supporting the move to increase contributions from 9 per cent to 12 per cent.
"The question is, is it enough? The answer is no."