Question

Between 1988 and 2018 the funds management industry has grown from approximately $200 billion to more than $2 trillion under management. The major contributor to this growth has been funds contributed to superannuation.

(a) Explain why there has been such growth in the superannuation industry in Australia.

(b) Describe the type of investment assets and asset allocation strategy that a superannuation fund would select. Explain why this would be the case.

Answer 1

(a) Superannuation in Australia is a Government initiative programme undertaken to encorage people of Australia to accumulate fund for regular stream of income during retirement. It is partly compulsory for people of Australia to invest in superannuation which is further encouraged by tax benefit. Employers must compulsorily contribute to superannuation scheme above the wages and salaries of the employee. Thus, due to above reasons the fund contribution to superannuation grew.

(b)Superannuation fund must be allocated to the different asset class like shares, property, cash, bond and fixed income securities. As overall investment into these various assets will be well diversified. The superannuation fund are invested into these asset class and the growth is reinvested to provide a guarateed income to the employees during the retirement. Asset allocation strategy is that if a person at an early years of age, the major portion is invested in the growth fund like in equities or property and person in the later stage of their life, fund is invested in the secured asset class like bonds or fixed income securities.