Key Concerns about the YFYS Scheme
The Your Future Your Super (YFYS) scheme has been the focus of increasing scrutiny, with critics arguing that it has led to a shift towards more passive investment strategies and higher fees. In response to the Productivity Commission’s Five Pillars Productivity inquiry, Independent Member for Wentworth, Allegra Spender, has called for the Commission to consider amendments to the YFYS scheme and the liquidity requirements for superannuation funds. Spender’s submission highlighted the need to encourage greater investment in early-stage capital in order to meaningfully boost productivity.
Bullet Points: Key Concerns about the YFYS Scheme
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- The YFYS scheme may have encouraged more passive investment strategies and discouraged private capital investments that attract higher fees.
- The increased transparency and restrictions on underperforming funds under YFYS have had a positive impact on fees, but may have had negative impacts on investment decisions.
- The performance test under YFYS may have encouraged short-termism and benchmark hugging.
RG 97 and the Liquidity Requirements for Superannuation Funds
Spender also highlighted the potential impact of RG 97, an ASIC regulation introduced in 2019, on the superannuation sector. RG 97 has placed a focus on gross fees, which may encourage more passive investment strategies and discourage private capital investments that attract higher fees.
Key Points about RG 97
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- RG 97 focuses on gross fees, which may encourage more passive investment strategies.
- RG 97 may discourage private capital investments that attract higher fees.
- Industry stakeholders have reported that the increased focus on gross fees has led to a reduction in the number of active investment strategies.
The Need for Increased Investment in Early-Stage Capital
Spender emphasized the importance of encouraging greater investment in early-stage capital in order to boost productivity.
Statistics on Investment in Early-Stage Capital
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- A Global Pension Assets Study released in February 2023 found that Australian super funds held 52% of their assets in equity and 10% in cash.
- The study also found that foreign pension funds allocated significantly less to cash and equities compared to Australian super funds.
Australia’s Investment Pool and Risk Appetite
Spender also highlighted the potential impact of liquidity requirements and risk appetite on the allocation of Australia’s investment pool.
Statistics on Australia’s Investment Pool
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- A Global Pension Assets Study released in February 2023 found that Australian super funds held significantly more assets in cash compared to foreign pension funds.
- The study also found that this high allocation to cash may be due to the large and frequent contributions made to the superannuation system rather than risk aversion.
Encouraging Investment in Younger Firms
Spender also emphasized the importance of encouraging investment in younger firms to boost productivity.
Statistics on Younger Firms
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- Research by e61 shows that younger firms are typically more productive than larger firms.
- Recent RBA data has shown that small-to-medium businesses have overtaken large businesses as the primary contributors to R&D expenditure.
Conclusion
Spender’s submission highlights the need for the Productivity Commission to consider amendments to the YFYS scheme and the liquidity requirements for superannuation funds in order to encourage greater investment in early-stage capital and boost productivity. She also emphasized the need for greater investment in younger firms, and the importance of ensuring that access to capital is not limited by high fees and risk aversion. The submission outlined several key points, including the potential impact of the YFYS scheme and RG 97 on investment decisions, the need for increased investment in early-stage capital, and the importance of encouraging investment in younger firms. Overall, Spender’s submission provides a critical review of the YFYS scheme and RG 97, highlighting the need for reform in order to boost productivity and ensure that the superannuation sector is working in the best interests of consumers.
| Key Takeaways | Recommendations |
|---|---|
| Greater investment in early-stage capital is needed to boost productivity. | Amendments to the YFYS scheme and the liquidity requirements for superannuation funds should be considered. |
| Private capital investments should be encouraged. | The focus on gross fees should be shifted to net fees. |
| Younger firms should be encouraged to invest in R&D. | Access to capital should not be limited by high fees and risk aversion. |
Blockquote
“The YFYS scheme has the potential to make a significant impact on the superannuation sector, but it needs to be designed in a way that encourages investment in a manner that is in the best interest of consumers.” – Allegra Spender
Definitions
Highlights
This article highlights the critical review of the YFYS scheme and RG 97 by Allegra Spender, Independent Member for Wentworth.
References
* e61 study on younger firms
* RBA report on the private equity market in Australia
* Global Pension Assets Study released in February 2023 by the Thinking Ahead Institute
* Research by Tech Council of Australia
* RBA data on R&D expenditure by small-to-medium businesses
Final Thoughts
This article provides a critical review of the YFYS scheme and RG 97, highlighting the need for reform in order to boost productivity and ensure that the superannuation sector is working in the best interests of consumers. The need for greater investment in early-stage capital, and the importance of encouraging investment in younger firms, are also highlighted. The article provides several key points and recommendations for the Productivity Commission to consider in order to address these issues.
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