How your superannuation is becoming one of Australia’s biggest exports

When we travel overseas, we regularly find ourselves taking note and appreciating those subtle reminders of home.

Strolling past an RM Williams store in London, coming across our renowned surf or health brands in retail outlets, a famous Australian on the world sporting stage, or familiar brands of food and wine products in supermarkets.

Australian super funds are investing billions of dollars in assets and infrastructure overseas.Credit: Getty Images

Yet, there’s one major Australian export that is increasingly everywhere, but goes almost unnoticed, and that’s your super savings.

But make no mistake, as your super fund scours the world looking for opportunities to grow your retirement savings: it’s also strengthening not only Australia’s economic and diplomatic ties, but shoring up our growing influence on the international financial landscape as well.

While much of this flows into financial markets with investment in companies, it’s also being invested into ‘real’ assets.

So next time you find yourself in an airport in Vienna or Manchester, driving on a toll road in Italy, the USA or France, using the high-speed internet in regional Germany or spellbound by the magic of AI in the US, home might be closer than first thought. Indeed, there’s a pretty good chance you might even own a piece of these assets yourselves.

The super system has its knockers, but as it matures it is becoming critical to Australia’s future economic wellbeing.

That’s the power of super – it gives working people a chance to gain exposure to multi-billion-dollar infrastructure investments that would otherwise not be possible. It lets hardworking Australians invest and own assets as though they’re the wealthiest people in the world.

This is a trend that will only continue as the Australian superannuation system expands – so much so, that capital itself will, in fact, become one of Australia’s most important exports. For a country renowned for its exports, that’s no mean feat.

The numbers speak for themselves – and they’re getting bigger and bigger. As of September, this year, the total pool of Aussies’ retirement savings is $4.1 trillion, or around 149 per cent of GDP – one of the largest pools of retirement capital in the world as a percentage of GDP.

By 2040, this pool of capital is expected to reach around $11 trillion or 193 per cent. Of this, the ‘institutional’ funds (industry, retail and government) account for $2.8 trillion currently, and this is expected to get to just over $8 trillion.

This capital is truly going global.

Institutional funds currently have around $1.2 trillion in offshore investments – or around 46 per cent of their invested assets. If this proportion holds, the current quantum will need to treble to around $3.6 trillion invested overseas by 2040.

It is likely that this asset allocation will edge upwards somewhat as the Australian economy and the investment opportunities it presents simply won’t grow fast enough to absorb this. To put this task in context, the additional $2.4 trillion that will flow offshore is around 63 per cent of the just under $4 trillion Australia invests in total in overseas assets currently.

Where will it all go? Australian capital will clearly go to all corners of the globe, diversifying across global financial markets and real assets.

But the latter, as the name suggests, are physical assets, and these assets are increasingly in countries with whom Australia is strongly aligned. Indeed, as of 2023, around 70 per cent of outbound foreign direct investment is in countries that Australia regards as geopolitical allies.

This makes sense in a world where geopolitical tides are increasingly unpredictable. Investors crave the confidence that their investment into physical assets, in particular, will be safe over the medium to long term. Similarly, governments of countries are seeking investment capital from long-term trusted partners, such as Australia.

This is why IFM Investors and a number of other super funds signed an investment Memoranda of Understanding with the British government.

This all really means two things: firstly, Australia will become an even larger capital exporter. Our net international investment position, as of around 2019, is already narrowing rapidly. The returns on these investments will increasingly reduce pressure on the current account deficit.

This global expansion strengthens our economic and diplomatic ties and underscores Australia’s growing influence in the international financial landscape. As we look to the future, the role of super will be pivotal in shaping not just our economy, but our global footprint.

Secondly, it is Australian fund members that will benefit from the increasing global reach of the superannuation system – providing investment opportunities in places, markets, and physical assets that are simply not available for the individual investor.

The super system has its knockers, but as it matures it is becoming critical to Australia’s future economic wellbeing: boosting retirement nest eggs, alleviating pressure on the aged pension, and reducing the future tax burden on younger Australians.

Alex Joiner is the chief economist at investment services company IFM.

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