Tanner warns super funds on shares bias

Q: What does Tanner mean when he calls the super system a "captive market"?

Tanner described the super system as a captive market because it is a large pool of mandated savings that benefits from tax and regulatory preferences. That scale and mandatory participation mean the system’s choices attract public scrutiny and political interest.

Lindsay Tanner has warned the superannuation industry it risks government intervention.

By InvestSMART · 4 Apr 2012

By InvestSMART ·
4 Apr 2012

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Lindsay Tanner has warned the superannuation industry it risks government intervention.

FORMER finance minister Lindsay Tanner has warned the superannuation industry that it risks government intervention if its long-standing bias towards investing in shares sparks a public backlash.

Mr Tanner, who left Parliament in 2010, said the industry needed to take seriously warnings from the likes of Super System Review head Jeremy Cooper, former chairman of the Future Fund David Murray and former Treasury head Ken Henry that ''our super fund system is over-exposed to equities''.

While cautioning that he was not personally asserting super funds were too exposed to shares, he said he was ''troubled'' by the responses from some in the industry to what he said were ''legitimate'' issues raised by Mr Cooper, Mr Murray and others.

Speaking at a conference in Melbourne yesterday, sponsored by corporate governance company Ownership Matters, Mr Tanner said the super system was a ''captive market, with a pool of money that is mandated'', which benefited from tax and regulatory preferences.

''For people engaged in this debate, even though I'm not advocating it per se, I warn you to be wary that we are dealing with a very big and serious issue - people's retirement incomes, and it is not good enough just to say we are out there just chasing the best short-term returns and, on average, over the millions of people involved, it all ends happily ever after,'' he said.

''That risk of government intervention is serious.''

Mr Tanner said while in government, he had always advocated against any government mandating of the structure of super.

''But ? if governments in the future of either side are faced with extremely unhappy super fund members because they have been on the wrong side of the equity cycle ? that will generate enormous political pressure,'' he added.

Mr Tanner called for more debate around what he said was a separate but ''undeniably linked'' issue - Australia's thin corporate bond market.

Mr Tanner said with corporate balance sheets ''already as lightly geared as we can ever expect them to be'' and with the proportion of savings in super set to rise as the superannuation guarantee rose to 12 per cent, ''if we are to meet the needs of our economy then more of our savings in our super funds is going to have to do the heavy lifting on corporate debt.''

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Frequently Asked Questions about this Article…

What warning did Lindsay Tanner give about super funds and possible government intervention?

Lindsay Tanner warned the superannuation industry it risks government intervention if its long-standing bias towards investing in shares sparks a public backlash. He said the risk of intervention is serious if large numbers of members become unhappy because funds were on the wrong side of the equity cycle.

Why are experts saying many super funds may be over-exposed to shares and equities?

Industry figures including Super System Review head Jeremy Cooper, former Future Fund chairman David Murray and former Treasury head Ken Henry have warned that "our super fund system is over-exposed to equities." Tanner said those are legitimate concerns and that some industry responses to those warnings were troubling.

How could a shares bias in super funds affect everyday investors' retirement incomes?

Tanner cautioned that chasing short-term returns or being heavily exposed to equities can leave millions of members vulnerable if markets swing against them. If super funds are on the wrong side of the equity cycle, many retirees could be unhappy with their retirement incomes, creating political pressure and potential policy change.

Did Lindsay Tanner support the government mandating the structure of super funds?

No. While in government Tanner had advocated against any government-mandated structure for super. However, he warned that severe public dissatisfaction with fund outcomes could nevertheless push future governments toward intervention despite his previous stance.

What did Tanner say about Australia’s corporate bond market and its link to super fund investing?

Tanner called for more debate about Australia’s thin corporate bond market, saying it is undeniably linked to the equities debate. With corporate balance sheets lightly geared and the superannuation guarantee rising to 12%, he said more super savings may need to do the heavy lifting on corporate debt.

What does Tanner mean when he calls the super system a "captive market"?

Tanner described the super system as a "captive market" because it is a large pool of mandated savings that benefits from tax and regulatory preferences. That scale and mandatory participation mean the system’s choices attract public scrutiny and political interest.

Who raised concerns about super funds’ equity exposure besides Lindsay Tanner?

The article cites Jeremy Cooper (head of the Super System Review), David Murray (former chairman of the Future Fund) and Ken Henry (former Treasury head) as senior figures who warned the super fund system is over-exposed to equities.

What should everyday investors look out for regarding super funds and potential policy changes?

Everyday investors should watch how super funds respond to warnings about equity exposure, any signs funds are heavily chasing short-term returns, public sentiment about poor fund outcomes, and policy discussions about the corporate bond market and the rising superannuation guarantee — all of which Tanner said could drive political pressure and possible government intervention.