THE $1.4 trillion superannuation sector faces renewed criticism for its heavy exposure to risky assets such as shares and property, with a new report calling for an overhaul of investment strategies.
Australian super funds have the highest share of holdings invested in growth assets in the world, rankings published by Mercer yesterday show.
With the typical super fund holding more than 70 per cent of its assets in growth assets, the report marks Australia's system for its "high level of exposure to volatile assets", which it says leaves investors bearing too much risk.
The dangers are heightened in Australia's compulsory super system because it is a defined contribution scheme, the report says. A larger weighting towards safer assets such as bonds and fixed interest is likely to provide "a better long-term outcome for members."
Despite the criticism, Australia's super system is ranked the third best in the world in Mercer's latest index of global pension funds, up from fourth place last year. This rise was mainly due to better conditions in sharemarkets.
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.
The report's author, David Knox, said the findings were a reminder to fund trustees to take a broader view to ensure their asset allocation strategies suited all members, especially those nearing 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 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," he said.
The report gave the best scores to countries with between 40 per cent and 60 per cent of their pension savings in growth assets.