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FSI panellist questions ‘sole purpose’ test

By Tim Stewart
2 minute read

Super funds will soon surpass their 'sole purpose' of funding retirement in order to provide healthcare, aged care and lending services to members, predicts a Financial System Inquiry (FSI) panellist.

Speaking at Thomson Reuters' third Regulatory Summit in Sydney yesterday, University of Melbourne professor of finance Kevin Davis said the objectives of superannuation are rapidly changing.

Mr Davis, who sat on David Murray's FSI panel, said one of the key recommendations of the FSI was the introduction of 'CIPRs' (comprehensive income products for retirement).

"We hold people’s hands all the way through the accumulation phase, and then say: 'Here’s a pot of money, good luck, you’re on your own'," Mr Davis said.

There are already alliances underway between superannuation funds and insurance companies that will provide CIPRs, he said.

"I wonder whether it’s not appropriate down the track for superannuation funds to move away from being sole purpose providers," Mr Davis said.

"If you think about what happens in retirement, it’s not just the income stream that matters, it’s all of the health, insurance and old-age accommodation activities."

While the superannuation system may have been set up in the early 1990s as a 'sole purpose' system, it is "not clear that is necessarily is still the right one", Mr Davis said.

"One of the potential areas of changes for superannuation funds in the future is to move more into areas like lending," he said.

"In principle there’s no reason that they can’t be involved in mortgage lending or lending to retail customers."

Rapid technology are creating more potential for superannuation funds to move into areas like lending, he said.

"Whether it’s the most cost effective is another matter entirely," Mr Davis said.