Don’t stifle super by using the wrong benchmark

And when you are talking about $3.2 trillion of members’ savings, an incredibly pertinent one.

But we have now had the benefit of two years of data in seeing how the tests work in practice and the unintended consequences are not trivial.Woe be it for me to simply add to the discourse by pointing out the problems – our aim is to suggest solutions. But it is worth firstly considering the most pressing concerns.

For example, ‘alternatives’ is too broad. It could be split to include ‘defensive alternatives’ and ‘growth alternatives’ categories. The current ‘alternatives’ category applies a 50/50 listed equity and fixed income weighted benchmark which implicitly forces superannuation fund trustees back into an equity beta, at odds with the whole purpose of the alternatives category, which is aiming for low correlation.

While APRA has previously flagged that superannuation funds need to take a strategic and risk-based approach to the management of various risks and opportunities For fixed income, the duration risk inherent in the indices is long and not relevant for predominately credit products. It would be prudent to maturity cap the chosen indices and also break them down into a rates component and a credit component.An international benchmark should also be introduced for real estate, which would require further development from the benchmark providers.

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