The Australian Superannuation System: Reasons 6 – 10 it’s Not Fit for Purpose

By Deep T, editing Gunnamatta

Intro to subject here, first 5 reasons here.

A critical examination of a $4.4 trillion compulsory savings experiment

6. Fund Managers Operate Under a Narrow Mandate That May Diverge From the National Interest

Super fund trustees are legally required to act in the “best financial interests” of their members. This is a narrow mandate: it focuses on individual member returns, not on whether the investment strategy serves the broader interests of the Australian economy or addresses the needs of future generations. The combination of this member-return mandate with institutional incentives — scale, fee revenue, career advancement — means fund managers may prioritise strategies that deliver returns on paper but do not necessarily align with national productivity or intergenerational fairness.

In practice, this means fund managers are incentivised to chase asset appreciation rather than productivity-enhancing investment. The system’s asset allocation tells the story:

55% of institutional super assets are in listed equities with Australian equities accounting for about 23% of total investments. The Australian equity market is itself dominated by banks and miners — the ASX’s top sectors are financials and materials — meaning super funds are effectively channelling compulsory savings into old-world, oligopolistic companies that have little incentive to innovate.

Only about 1% of total super assets are invested in private debt, and only 4.5% in unlisted equity — the categories most likely to fund new enterprises and innovation

Super funds collectively own around one-third of the ASX, giving them enormous voting power over corporate Australia — power they exercise selectively and with limited transparency.

The hard numbers, from APRA’s own March 2026 release: total Australian superannuation assets sat at $4.44 trillion as of end-March 2026, up 7.9% year-on-year. Net contribution flows into the system — that’s contributions plus net transfers, minus benefits paid out, so genuinely “new money” rather than money already in the system being shuffled around — came to $74.5 billion for the year to March 2026. Spread evenly across 365 days, that’s roughly $204 million a day flowing into super overall, across every asset class (Australian shares, international shares, fixed income, property, infrastructure, cash).

Separately, on the ownership side rather than the flow side: super funds collectively now own somewhere around 36-38% of the entire ASX’s market capitalisation, worth roughly $874 billion by one recent estimate, up from about 35% a decade ago. The collective pricing power of super funds must incentivise to use that ability to support the prices of incumbents. The RBA has noted that the domestic equity market is “very concentrated in financials and mining” and that home bias persists due to tax treatment of domestic investments. This means compulsory super is channelling Australian workers’ money into precisely the sectors — big banks, big miners — that already dominate the economy and risk reinforcing incumbent market power.

As another data point according to the ABS, Australia owes the rest of the world $1.5 Trillion (mostly government and bank debt) but has offshore investments of $750 Billion (most of which is in the US stock market) by superannuation funds. Australia is more like a leveraged hedge fund than a balanced economy.

In addition to all of the above the prioritisation of individual ‘best interest’ means an approach to exploit the opportunity the superannuation system represents, particularly with regard to taxation, and access to the pension system and the shielded assets embedded in the pension system approach to entitlement to age pensioner support.

7. The Government Corrals the Wealth but Lacks a National-Interest Investment Architecture

The federal government compels every Australian worker to have 12% of their earnings directed into super funds. While the prudential regulation of these funds — through APRA, ASIC, and the ATO — is extensive, the system lacks a coherent framework to ensure this $4.4 trillion pool of Australian wealth is deployed in ways that serve the national interest. Prudential regulation ensures funds don’t collapse but that same regulation is invariably against the national interest.

There is no requirement for super funds to invest in Australian productive infrastructure, Australian innovation, or Australian affordable housing — the areas where the country most needs capital. The Productivity Commission’s 2020 review found “structural flaws — unintended multiple accounts and entrenched underperformers — harming millions of members, and regressively so

When the Victorian Premier suggested super funds should do more to “unlock that productivity capacity, UniSuper CIO pushed back, warning against treating super as “one big honeypot” and arguing that mandatory allocation to public policy needs would drive members to self-managed funds. This exchange highlights the fundamental tension: the government forces Australians to save, but the funds managing those savings reject any obligation to deploy them for national benefit.

The exchange also demonstrated that our friend the CIO does not even understand the issue and so reverts to hysterical accusations as the basis of their argument.

Even more notably, at a fundamental level, governments of both mainstream political sides mandate compulsory savings in the superannuation system in the context of there being no compulsion or sense of mandatory commitment to, and measurement of, national economic outcomes.

Over the period since superannuation in Australia began Australia’s economy has evolved to have:-

• Far fewer Australian companies engaged in activities which are exporting or import competing
• A collapsed Australian manufacturing sector and increased reliance on commodity exports
• Far more Australians directly or indirectly employed by government at Local, State and Federal Level, or are funded by government.
• Australian companies and Australian employees contributing to Australian superannuation funds are using Australian land, buildings, and energy which has, in real terms has become markedly more expensive, and is now regularly more expensive than outside Australia, with Australian superannuation a significant investor in Australian property development, land holding and energy generation and energy retail sectors (for which Australians and Australian companies receive energy subsidies from government).

8. Compulsory Super Slows the Velocity of Money

The velocity of money — how quickly a dollar circulates through the economy — is a critical indicator of economic health. When money circulates faster, it generates more transactions, more economic activity, and more growth per dollar of base money.

Compulsory superannuation diverts 12% of every worker’s earnings into investment accounts where it cannot be spent on goods and services for decades. This shifts money from circulating in the real economy — through consumer spending, small business investment, and wage-driven demand — into long-duration institutional investment. Whether this constitutes a harmful or beneficial reduction in money velocity is contested by those with vested interests. ASFA and Treasury argue that the system has boosted national saving and capital stock, with ASFA estimating GDP is about 2% higher than it otherwise would be. But ASFA also acknowledges that for each dollar of compulsory super, net household saving increases by only about 60 cents — meaning 40 cents represents saving that would have occurred anyway, just in more liquid, faster-circulating forms. The opportunity cost of locking away 12% of earnings for decades — in terms of reduced consumer demand, dampened small business investment, and lower money velocity — deserves far more scrutiny than it has received. We should have a lot of doubt about the veracity of the ASFA and Treasury biased analysis. Just does not pass the pub test.

The velocity-of-money argument is strongly supported. The evidence chain is:

• Super redirects ~$38 billion/year net from consumption to asset markets
• Each 1% SG increase is equivalent to a 100bps rate hike in its consumption-suppressing effect
• 30-43% of compulsory contributions represent saving that would have circulated more quickly in other forms
• Super fund investment shows virtually no correlation with gross fixed capital formation
• Super inflows may inflate asset prices rather than fund productive investment
• Money that would have gone into housing equity (49% of household portfolios) is redirected to financial instruments and offshore assets

9. Fund Managers Chase Asset Appreciation, Not Productivity

The incentive structure of super fund management encourages investment in asset appreciation rather than productivity-enhancing ventures. Fund managers are rewarded for delivering returns, and the easiest way to deliver returns in a low-rate, asset-price-inflated environment is to invest in existing assets that appreciate — property, infrastructure, and established company shares — rather than in new enterprises that create jobs and innovation.

The data confirms this pattern. Super funds hold large allocations unlisted property alone accounts for $114 billion and $205.9 billion in unlisted infrastructure These are assets that may generate stable, long-term cash flows and appreciate in value — good for fund returns, but not for economic dynamism that would lift all Australians.

By contrast, venture capital and private equity — the investment vehicles most likely to fund startups, new technologies, and innovative businesses — account for a tiny fraction of super fund portfolios, with unlisted equity comprising just 4.5% of total institutional assets . The RBA notes that super funds’ allocation to private market assets is growing but remains concentrated in commercial real estate and infrastructure rather than early-stage or growth companies

This investment pattern risks creating a feedback effect: by concentrating capital in established, oligopolistic companies (banks, miners, utilities), super funds may reinforce the market power of incumbents and make it harder for new entrants to compete. The result may be less competition, less innovation, and lower productivity growth across the economy.

Ordinary working Australians are in the mildly discomfiting situation of observing that their retirement incomes are invested in the rentier oligopoly managers and owners of the corporations running, and selling Australians, some of the world’s most expensive and privatised roads, electricity, highest margin grocery retailers, internet access, houses, and financial services, making them amongst the worlds most expensive workforces, with Australian governments funding more employment than they have ever done outside war.

10. The System Stifles Opportunity for Young Australians

Perhaps the most damaging consequence of the super system is its intergenerational impact. Young Australians are compelled to hand over 12% of their earnings to fund managers who invest predominantly in the existing asset base — property, infrastructure, and established companies — rather than in the new ventures and technologies that would create the jobs and opportunities of the future.

Those same younger Australians are looking at vastly more expensive housing – whether owned or rented – than previous generations of Australians, are less likely to have employment in a globally exposed sector of the economy, and more reliant therefore on selling to a domestic consumer with a world leading average private debt. These are the people we will hand the country to in coming generations. Anyone in the accumulation phase of superannuation wants a better economic for these people because it is in their economic interest to do so. But we seem to be grinding them into an intergenerationally moribund economy with intergenerationally heavy debt and an intergenerationally heavy taxation reliance on them.

When a young person first enters the workforce their priorities are establishing their career or a business, building a family and buying a home – not preparing for retirement. Having to pay 12% of your pre-tax income into a fund that can’t be touched for around 50 years and paying a private fund manager fee for this privilege is not in the best interest of young people. The theoretical calculations of what super may accumulate to on retirement may suit a minority but do not account for the costs or lost opportunity of the young in their most formative years. Compulsory Superannuation for the young is not fit for purpose.

The $4.4 trillion super pool is, in effect, a massive transfer of wealth from working-age Australians to the financial services industry, invested in ways that may reinforce the economic status quo. Young people are paying into a system that may contribute to asset-price pressure (including the housing they are trying to afford), concentrates economic power in incumbent companies, and provides no mechanism for them to direct their savings toward the industries and innovations that would benefit their own generation.

Whilst the fund managers would argue that their management of super has produced enormous benefits from investment returns – a reasonable qualitative read is that a minority of the $4.44 trillion — plausibly somewhere in the 30-45% range — is actual cash that members and employers put in, with the rest being investment earnings compounded over three-plus decades. No analysis is available as to the alternative returns or opportunity costs of the economy without compulsory superannuation that primarily effects youth.

A UNSW paper identified this tension directly, noting the system is “skewed heavily towards the presumption” of continuous full-time employment and that its structure leaves women, carers, and those with broken work patterns “accumulating considerably less super than men. The same critique applies to young Australians: the system was designed by and for the generation that created it, and it locks in their preferences at the expense of those who come after.

The Takeaway so Far

Australia’s superannuation system has succeeded in one thing: amassing an enormous pool of capital. But the cost of that success is becoming increasingly apparent. The system subsidises the wealthy through tens of billions in tax concessions, fails women, carers, and the self-employed, concentrates national wealth in a handful of mega-funds with no obligation to serve the national interest, slows the circulation of money through the economy, and reinforces the market power of incumbent companies at the expense of innovation and new enterprise.

None of this is to say that compulsory retirement savings are a bad idea in principle. But the current implementation — a government-mandated transfer of 12% of every worker’s earnings to private fund managers who invest at their own discretion and for their own benefit — is not fit for purpose. The system was designed in the early 1990s for an economy and a workforce that no longer exists. The size of the superannuation pool and its effect on the national interest was never taken into account at it inception and since. It needs fundamental reform, not incremental tinkering.

A reform agenda could address:

– Tax concessions: Cap concessions so they don’t disproportionately benefit high earners; redirect savings to the base of the income distribution

– Gender equity: Pay super on parental leave, introduce carer credits, and address the structural biases that leave women with a fraction of men’s retirement savings

– Fund concentration: Strengthen governance, transparency, and accountability for mega-funds that control trillions in national wealth

– National interest: Require a portion of super fund investments to be directed toward productive, innovation-enhancing ventures rather than purely asset-appreciating ones

– Money velocity: Consider whether locking away 12% of earnings for decades is the most efficient use of capital in an economy that needs dynamism and circulation

Or

We restart with a completely different system that solves for all of the above faults

The superannuation system is too big, too important, and too expensive to fail. But in its current form, it is failing too many Australians.