Australian high equities belief debunked

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Contrary to popular belief, Australia does not have a higher proportion of superannuation assets invested in equities in comparison to overseas markets, according to new research.

The Mercer-commissioned research for the Financial Services Council (FSC), which benchmarked Australia’s asset allocation for superannuation against 11 other comparable pension schemes around the world, was revealed yesterday.

The FSC stated the research shows that Australia in fact has one of the most diverse asset allocations of the surveyed countries.

John Brogden, CEO of the FSC, said our superannuation investments in equities stack up to other large pension funds around the world.

“The regular criticism that the superannuation is overweight in equities is not borne out when we compare our system with large pension systems in the US, UK and Canada,” he said.

Four of the five largest pension systems in the world – Canada, the USA, UK and Australia – have invested between 35% to 50% of their assets in equities.
Australia clocks in as the world’s fourth largest superannuation system, and our funds have 50% of assets invested in equities.

The research also revealed that Australia should be expected to have a high allocation of superannuation investment in equities for a number of reasons, including a higher ratio of younger to older fund members than other countries, whereby the younger demographic makes it more appropriate to invest in growth assets.

“As the superannuation system matures and baby boomers move into retirement, the proportion of funds invested in equities is likely to decline as retirees demand lower risk assets with more stable income streams,” said Brogden.

Yesterday the CEO also delivered a keynote speech at the FSC Deloitte leadership lunch where he urged the audience that Australia must make more of its financial services expertise, especially considering that it manages one of the third largest pools of funds in the world.

“We want the financial services industry to be seen for our strengths, comparative advantage and place as an export industry in our own right,” he said.

Brogden added that the looming Murray enquiry must treat and review financial services as a driver of exports, economic growth and jobs, as the future wealth of Australians depended on it.

The growth of superannuation has been the most significant change to the financial system since the Wallis enquiry, and the savings ratio in Australia has grown from 0.3% of income in 2003, to 10.5% last year.

“The size of our superannuation savings pool is one of the factors that assisted Australia to ride out the recent financial crisis,” Brogden said.

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