Retirement
Will the government be at fault for poor super investments?
The proposed changes to the Your Future, Your Super legislation could leave the government open to litigation risks, as well as see key parts of the Australian economy dominated by foreign ownership, two experts have claimed.
Will the government be at fault for poor super investments?
The proposed changes to the Your Future, Your Super legislation could leave the government open to litigation risks, as well as see key parts of the Australian economy dominated by foreign ownership, two experts have claimed.
The Your Future, Your Super Reforms, unveiled in the 2020 budget, aim to improve the efficiency of the system, giving the government the power to halt a fund from making a specific investment that is deemed poor by the regulators.
While the government has highlighted that its powers extend to broader types of investments, UNSW professor of commercial law and regulation, Dr Pamela Hanrahan, believes the government is exposing itself to possible litigation challenges, with members likely to challenge the government's selection of "poor" investments.
“That is always a concern particularly for regulators. The most difficult thing sometimes to do is not to act because you’re quite right there can be cases when people turn around and challenge that decision,” Dr Hanrahan told an AIST media briefing.
“A really good example of that is transition risks around climate change. We do know there are various class actions against government decision-makers against their failures to intervene, to make sure particular projects, for example, don’t go ahead.
While highlighting that there is a potential for litigation risk, the professor noted that under existing law, the success of such litigation is questionable.
“So, you can certainly see there is potential for litigation risk – whether that is successful, that is a long way down the track.
“If the government of the day decided it wasn’t going to intervene to control decisions around assets that were stranded later, they might face a challenge later.”
Raising further concern, IFM Investors' director of policy and research, Anna Engwerda-Smith, opined that there is a possibility these assets could become foreign-owned, with super funds likely to change strategies once changes to the performance test are enacted.
“We’re particularly concerned about the benchmarks for unlisted assets such as infrastructure, agriculture, property, private equity, which play a really important role in portfolio by providing diversification and relative earning stability,” she said.
“No manager will want to risk failing the performance test, so we are concerned they will build listed portfolios that track the index rather than portfolios which might offer better long-term risk-adjusted returns but run the risk of underperforming the benchmark once in a while.”
Ms Engwerda-Smith highlighted this change could also have a flow-on impact to the larger economy.
“This would be a poor outcome for members who are interested in long-term assets and a poor outcome for the country pushing investment offshore because many of those listed indexes are dominated by foreign assets.
“It could leave important sectors of the Australian economy open to investors, often overseas-owned who are not subjected to the same rules,” Ms Engwerda-Smith concluded.
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