Super funds facing liquidity and investment risks

Superannuation fund trustees are facing on-going liquidity and investment risks as a result of Australia's ageing population and more attention needs to be paid to products, advice, and education, according to the Australian Prudential Regulation Authority (APRA).

APRA has used its annual report, tabled in Parliament this week, to outline the state of the industry and to point to concerns around Australia's looming demographic challenges.

"The industry has continued to experience strong growth in invested funds, fuelled by the compulsory nature of the superannuation guarantee contribution. However, benefit payments have been rising at a faster rate than contributions, as reflected in the upward trend in the net outflow ratio," the APRA annual report analysis said.

It said this trend was due to Australia's ageing population and a large number of members transitioning from the accumulation phase to the post-retirement phase, and posed ongoing liquidity and investment risks for trustees in meeting their obligations to members.

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"It also means the industry needs to consider the products, advice, and education available to fund members as they make this transition," the APRA annual report said.

It said lump sum payments continued to predominate, but fund members had been withdrawing an increasing proportion of their superannuation savings as pension payments.

The APRA annual report also noted there had been only marginal improvements in efficiency in superannuation funds over the decade.

It said that this was because, notwithstanding the benefits of scale- related cost reductions, the cost of enhancements in member services and adapting to regulatory change had added to the industry's cost base.

"The realisation of cost reductions from fund mergers have also been less than anticipated," the annual report said.