Is the Risk Profile of Australian Superannuation Funds Changing?
University of New South Wales (UNSW) - Australian Taxation Studies Program
July 15, 2004
This paper examines the risk profile of a selection of Australian Superannuation Funds over the period 1994 - 2004. In the context of rising domestic and international equity investments, coupled with an apparent lack of members effecting investment choice when available, the potential for an increasing gap between member and trustee expectations of fund risk is explored. To evaluate this potential gap, the incremental value at risk method is used to quantify the market risk faced by funds for each year from 1994 - 2004. Comparison of this longitudinal series yields the long-run impact of changing asset allocation on fund risk. The results suggest that the market risk faced by superannuation funds has increased on average by 1-2% of capital over the decade as a result of changing asset allocation. The implications for fund members and the effect of increased risk on their benefits is considered, as well as trustee disclosure obligations, and the ability of the government to implement member choice under such asymmetric information conditions is examined.
Keywords: Superannuation Fund Risk, Pension Fund Risk, Australia, Value at Risk
JEL Classification: G11, G18, G23, G38
Date posted: December 5, 2004