Former Treasury Secretary Ken Henry has questioned whether superannuation members understand the risk embedded in the existing default fund options.

Henry argued that more thought has to go into the sequencing of returns, shifting away from equities and towards fixed interest assets in the later stages of accumulation.

"How many superannuation members understand the risk that they are taking on a selective default portfolios? A very, very small percentage, I would say," Henry said at an Association of Superannuation Funds of Australia (ASFA) investment conference on Friday.

"How many of them were told in 2007 that your portfolio has done very, very well over the past 15 years or so, but you must understand it is always going to be that way. How many were told? Maybe some [members] in some sectors were told, but very few would have understood it."

Henry argued that the global financial crisis had caused major loss of savings of those who were close to retirement, while the level of losses could have been reduced by shifting away from equities in the later stages of accumulation.

"What should be a key concern is sequence [of returns]," he said.

Henry also said the fact that many members have opted for the default option was a sign of the level of perceived difficulty in making investment choices, rather than the default being best suited to their circumstances.

"It is not that the default option is perfectly tailored to their personal circumstance, they just assume that: 'Someone knows more about it than me'," he said.

"We should be thinking much more seriously about what kind of portfolio is appropriate for Australian superannuation members."

Potential options could also include a form of portfolio insurance, Henry said.

He also warned that if the industry did not address these issues, it could lose support from the general public.

"This industry is a world class industry, there are very few countries that have anything like this, but don't take it for granted that it will always enjoy the broad measure of support that it always has enjoyed up to now," he said.

"Certainly, if you reflect on the impact the global financial crisis had on the way that ordinary Australians feel about the superannuation fund industry."

ASFA chief executive Pauline Vamos acknowledged Henry's concerns.

"Yes, we have seen public sentiment reduce and from an ASFA point of view our core strategies are around the confidence in the industry," she said.

Vamos pointed out the association had launched guidelines to measuring risk in portfolios, based on the number of negative annual returns over a 20 year period.

But she said further work had to be done to make the measurements consumer-friendly.

"The next step is: What is the consumer equivalent? Because one in 20 [years] is not a great measure for consumers," she said.