The pension industry is ready with billions of dollars in “patient capital” to support the federal government’s green energy plans, according to Wayne Swan, chairman of the $65 billion construction industry super fund, Bus.
In an interview with Investment MagazineALP chairman and former federal treasurer, said the sector could also consider investing in areas such as critical minerals if policies were appropriate.
“When you look at the scale of the transition that we are going to have to make from fossil fuels to renewables in the electricity sector, and more generally, the super is going to play a big role in investment in these areas”, did he declare.
He said many pension funds are already green energy investors.
“But if we get much clearer market signals from the government and we can get new structures, the super funds will be active participants,” he said.
“Many of us are already active in particular projects, but if it became more systematic and there was more of a government framework, then we would be interested.”
As federal treasurer to the previous Labor government, Swan established the Clean Energy Finance Corporation (CEFC) in 2013, appointing Sydney businesswoman Jillian Broadbent as its first chairperson to help fund clean energy projects. The company survived and thrived despite the new Abbott government’s election promise to abolish it.
Swan said critical minerals was another area the pension industry could support.
“Australia has the ability to be an energy superpower, which provides the opportunity for cheaper energy for industry,” he said.
“Given that we also have one of the largest reserves of critical minerals in the world, it would make sense for the country to get more involved in processing critical minerals.”
“You see federal and state initiatives to ensure the continued processing of critical minerals in various parts of the country.
“Somewhere in that pipeline there may well be a role (for some form of investment by super funds) if it is in the interest of our members.”
Net zero by 2050 with earlier targets also set
Like many other super funds, Cbus has its own carbon reduction targets in its investment portfolio, with most committing to the Paris Agreement target of reaching net zero by 2050.
Cbus aims to be net zero by 2050, including a 45% reduction in absolute emissions from its portfolio by 2030 and to achieve net zero for its entire real estate portfolio by 2030.
Swan, whose 1995 budget as federal treasurer announced initiatives to strengthen the role of retirement pensions, including supporting the insertion of employee contributions into all industry awards, said the pension system of pension had played a vital role in supporting the Australian economy in times of crisis, including the global financial crisis and the Covid pandemic.
“Now it can do so much more in the best interest of its members and in the best interest of the nation, helping the country make the next big transition which is the transition to clean energy.”
Swan said the recent Labor government election would give the pensions industry “breathing time” to “lock in the fundamentals of the system” – without having to worry about potential government action to undermine it.
He said former Prime Minister Scott Morrison’s last-minute campaign decision to allow first-time home buyers to take up to $50,000 from their superannuation to buy a home was another his government’s attempt to “dismantle” the old-age pension system by undermining the essential element. conservation.
“I hope we can continue the work of strengthening the foundations of what is a very good system – free from the constant government attacks that have characterized the last nine years of super industry,” he said. he declares.
“We now have some breathing room to be at our best and focus like a laser on member interests and member feedback, free from all propaganda and politically inspired attacks on the system.”
Low-income people are the most affected by the changes
Swan said the people who had suffered the most from the “undermining” of the pension system by measures such as the former federal government’s early access programs during Covid, were those with the lowest incomes, like the members of Cbus.
“We are the fund where people will typically have lower balances when they retire because our members have less secure employment and therefore, on average, lower balances over time.”
“They are the ones who are crushed by these proposals for early withdrawals. Small as they are, they have a dramatic long-term impact on their retirement income. »
Swan said the federal parliament should pass legislation to define the purpose of the national pension system, which would ensure that its aim was to improve outcomes for members.
He said the superannuation was not the answer to all the community’s financial problems, but aimed to help people save for a decent retirement.
There should be a “mature national discussion” around the goal of retirement “without the threat of dismantling key parts of the industry”, he said.
He also backed calls for a “refinement” of the annual Your Future, Your Super performance tests for superfunds which came into effect last year.
Under the system, funds that fall below their performance criteria, taken over an eight-year period, twice in a row, can be barred from receiving further member contributions.
The system has been criticized for having benchmarks that are backward-looking and deter funds from making long-term investments in areas such as clean energy that may take time to pay off.
Need for mature discussion on performance test
“We need to have a mature discussion about the performance test,” he said.
“I have no fundamental objection to measuring fund performance in the interest of transparency, but there are perverse effects of the current performance test – which have the potential to punish funds that make long-term investments. in the best financial interest of their members – which needs to be refined.
“We don’t oppose competition or comparison, but we just have to take the right steps.”
Mr Swan said the success of the mandatory pension system had exceeded the expectations of its founders, who included leaders of the Labor Party and trade unions.
In his 1995 budget speech as treasurer, Swan estimated that the retirement system could have assets of about $2 trillion by 2020. The system currently has some $3.4 trillion in assets. assets.
“As early as 1995, I knew superannuation and Medicare were going to be two of the great national institutions,” Swan said.
“But even I didn’t think when it started that it would turn out to be this spectacular success and such a driving force in our economy.”
Swan said one of the next big challenges for the super system is managing the transition to the retirement phase as baby boomers stop working.
The super fund industry is also planning the introduction of the Retirement Income Convention on July 1, which requires funds to define their strategy to help their members navigate their transition to retirement.
Swan said the system was now in the “disaccumulation phase,” where increasing numbers of members were retiring and dipping into their savings.
“As the Callaghan committee recommended, this retreat area is now a much larger area for funds to focus on.”
Swan said Cbus is working on plans for its strategy.
He said he expected super fund strategies around retirement to include more retirement advice as well as new products specific to retirees, but he didn’t want to preempt his fund’s announcements.
“We have some exciting announcements to make in the near future regarding support for members in their retirement, but I am unable to say much more at this time.”