Use super pool for long-term capital investment: ISA

Industry Super Australia (ISA) has stated that superannuation should be used as a second pillar of the economy, alongside the banking sector, and for long-term capital investments.

ISA made the statement in its submission to the draft terms of reference for the Financial Services Inquiry, claiming the inquiry was a good opportunity to reposition the sector to transform Australia's savings pool into long-term capital investments, particularly in areas that drive productivity growth.

"In a global context Australia's financial system is unique. Thanks to superannuation we have among the highest per capita savings pool in the world which could act as a second pillar of funding in the economy, separate from the banking sector," ISA chief executive David Whiteley said.

Whiteley said the stability of the superannuation sector during the global financial crisis exceeded that of the banking sector, which was reliant on government guarantees on bank deposits and bank bonds.

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He stated that superannuation funds did not need these guarantees and "acted as a macroeconomic stabiliser, investing into the market especially while share prices were falling".

"It is important that in bringing the second pillar into reality, the inquiry thinks about how Australia can be the leader of global financial services.

"This will create opportunities for super funds to engage in direct investment in firms and projects through primary markets using a buy-and-invest approach, with limited intermediation and secondary markets."

Whiteley said the two pillars would need to be kept separate to create diversity in the sources of funding, but also to minimise the risk carried by either sector as well as reducing institutional complexity which would arise if the two were mixed.