Can infrastructure investment fund retirement incomes?

Returns from investments in infrastructure may help underpin the ability of superannuation funds to finance post-retirement products for their members, according to the Association of Superannuation of Australia (ASFA).

ASFA has used a submission to a Senate Committee Inquiry into Privatisation of State and Territory Assets and New Infrastructure to argue that the Government should take a sympathetic view of superannuation funds' strong appetite for lifting their level of investment in infrastructure.

It said there were a variety of reasons for this including increasing levels of superannuation capital capable of being invested in infrastructure and the structural shift in the composition of the superannuation system as the first wave of baby boomers move into retirement.

"This generation of retirees will require products that deliver income streams in retirement," the submission said. "It is projected that the percentage of assets in retirement products will increase over the next 15 years from a current 30 per cent of all superannuation assets to 35.6 per cent, or around $365 billion to $1,036 billion."

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It said this would require funds to adjust their investment strategies and increase their allocation to assets that have low volatility, steady returns and long term investment horizons to match the needs of members and many infrastructure assets fit this investment profile.

"As the pool of superannuation funds continues to grow, we are also likely to see an increase in the number of funds consolidating. This means less but larger funds, who will have greater capacity and scale to invest in infrastructure, as well as better in-house expertise to bid for projects," the submission said.

It said that while the potential and desire for superannuation funds to invest in infrastructure was strong, an ongoing impediment had been the absence of a long-term, stable and transparent pipeline of investment opportunities.

"When funds are unable to locate assets in Australia that suit their investment strategies they will naturally seek investments elsewhere. When it comes to infrastructure, the lack of suitable projects in Australia leads to funds actively pursuing infrastructure investment opportunities overseas," the submission said. "While this boosts the diversification of the fund's investment portfolio, it pulls the economic benefits of infrastructure investment away from the Australian economy."