Collectively, Australians are sitting on a huge nest egg. At about A$4.5 trillion, our national savings pool is one of the largest in the world.

Now, facing major national challenges in housing, productivity, the clean energy transition, and more, the federal government has renewed calls to direct superannuation towards solving Australia’s problems.

This is not a new idea. But it’s important not to lose sight of the fact that superannuation already is a national asset. We can use our national super pool to address some of our biggest challenges. But forcing funds to invest in particular projects or sectors is problematic. There’s a better approach we’ve already tried.

A ‘national asset’

At the recent Superannuation Lending Roundtable, an annual event hosted by The Australian Financial Review, Prime Minister Anthony Albanese said there was a “real potential” to see superannuation funds as “a national asset that can be used more appropriately and get better returns as well, not just for individuals and for retirees, but for the nation”.

Albanese reportedly urged attendees – including the chief executives of several major super funds and banks – to invest more of their members’ funds in Australia, in particular, business lending to fuel growth. There was immediate pushback in the room, with Westpac’s chief executive Anthony Miller reportedly telling the Prime Minister: “Don’t touch the super complex, don’t direct it, don’t tell it where to go”.

The superannuation sector and others have long raised concerns that being forced to invest their members’ funds in a particular way risks distorting capital markets (and therefore the economy as a whole).

A duty to members

Extended to cover the full-time workforce in 1993, Australia’s superannuation system’s primary function is to help people accumulate the savings they need, alongside government support, to provide the income they need for a dignified retirement.

Learn more: One size doesn't fit all: Is the super system failing vulnerable members?

One of the strengths of the system has been its focus on legal accountability for fund trustees to seek investment opportunities and do what is best for their members. This duty is enshrined in the legislation as the “best financial interests duty”. This means trustees need to act in their members' best interests, balancing potential returns against the risks involved.

Focusing on the needs of the fund’s members is key – not the needs of Australian society as a whole.

Mixed mandates

In life, not just finance, it’s simpler to pursue an objective when you’ve got one clear objective. And herein lies one of the major problems with having the government direct how superannuation should be invested.

If trustees are asked to weigh up competing goals – their members, in addition to broader society’s – both objectives are likely to be diluted. It can also create incentives for people with particular agendas to be appointed to the boards that manage these funds, rather than to look out for the needs of their members as a whole.

"It is important to remember that in Australia, most funds are based on defined contributions"

SCOTT DONALD

It is important to remember that in Australia, most funds are based on defined contributions. So any performance shortfall by a fund is felt by its members, not by society as a whole.

A better approach

This isn’t to say the government shouldn’t be able to influence super funds to support projects in the national interest. But there are other ways than mandating their investment decisions. Indeed, some of them are already in place.

There was a time when superannuation funds were not taxed on their earnings. Now, they are. Tax settings affect which types of investments are attractive to super funds.

Governments can also package up certain types of assets and have done this in the past, such as certain toll roads, to make them attractive to funds with billions of dollars to invest. For instance, in 2024, several major super funds partnered with community housing providers to make investments through the Housing Affordability Future Fund (HAFF).

Unlike personal investors, many super funds can afford to lock in long-term investments in infrastructure and similar assets that aren’t traded on the stock exchange. And members benefit, so long as the government ensures that the terms and prices of those arrangements make economic sense.

Indirect influence

There are ways the government can, and does, act indirectly as well.

The annual performance test – imposed by the Australian Prudential Regulation Authority (APRA) on super funds – indirectly discourages certain strategies, particularly those without a listed market. The government is currently reviewing that test to ensure it isn’t overly distorting investment allocations.

The introduction of climate reporting is another example. We should not underestimate the importance of disclosure obligations. By requiring fund trustees to disclose information about any climate-related risks and opportunities, the government has reinforced the implicit requirement that consideration of these risks is important.

The rise of investment opportunities in potentially lucrative but energy-intensive data centres, for instance, will bring this to the fore.

The forecasts in 1989 that Australia’s population would age and that individuals would have to assume more of the burden of financing their retirement have come about. The superannuation system is specifically designed to shoulder that responsibility.

Scott Donald is a Professor in the School of Private and Commercial Law at UNSW Sydney. He joined the university after a successful career in the funds management industry advising governments, superannuation funds, insurance companies and fund managers on investment strategy, governance and regulation. A version of this post first appeared on The Conversation.