Recently, we’ve seen the Government express some desire to help people get into the housing market by allowing access to their super under certain conditions. This reflects concerns over property prices but it also touches on the issue of how much money is actually locked away in super funds and the manner in which the government can influence how it is accessed and used.
Sometimes, rather than creating a new rule, Governments might be better served to revisit old ones.
There used to be a rule (called the 30/20 rule) that required Superfunds to hold a certain percentage of their investments in government securities or else lose their tax exempt status. According to Bob Deutsch ** there is no reason to suggest that such a mechanism could not be looked at again. As an example, the government could require all superannuation funds to invest, say 10%, of available funds directly in infrastructure. The quid pro quo would be a moderate interest based return accompanied by a dual guarantee from the federal government – a guarantee as to the return of capital, and a guarantee of a minimum percentage return on an annual basis. With such a guarantee, the rate of return could be quite modest since the risk would be minimal.
Such a measure would effectively take the government out of the infrastructure space (apart from the guarantee obligations) as that funding requirement would be taken up through this Superannuation Infrastructure Investment. Members interests would be protected as a guaranteed return on invested funds is provided thereby adding to their retirement funds.
No doubt there will be those who scream “the federal government should not be mandating particular types of investment to superannuation funds”, but this could be answered by reference to the modest amount of investment required (i.e. 10%) and the guaranteed minimum return.
Is it an idea worthy of further consideration?
** Bob Deutsch is Senior Tax Counsel at The Tax Institute and is also currently a Deputy President of the Administrative Appeals Tribunal (AAT).