This piece was originally published in Capital Brief. Click here to read.
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Dec 10, 2025
Australian policymakers often congratulate themselves for presiding over one of the world’s largest pension pools through our superannuation system. But the same policymakers have also built a web of well-intended regulations rules that are increasingly disincentivising investment in higher-return, longer-duration assets that leave both retirees and the broader economy worse off. The Government has now opened the door to reform. We must seize this opportunity.
For more than two years, I have been speaking with venture capital and superannuation firms to understand why Australia invests relatively little in the sector, and why that share isn’t growing at the rate it could in the superannuation sector. Australia’s per-capita venture capital investment is about one third of that of the United States and roughly half that of the United Kingdom. More troubling still, the proportional allocation by superannuation funds is declining.
According to some in the sector, large super funds have not invested in new emerging VC funds for five years.
This retreat makes little sense. Venture capital is structurally well-suited to superannuation: it is long-duration and can deliver high returns over time. Over the last decade, private equity and venture capital have delivered returns nearly double those of the ASX, according to the Australian Investment Council. Beyond returns, these businesses firms sit on the productivity frontier and at a time of stubbornly weak productivity, these are precisely the businesses Australia should be nurturing.
So, what is holding us back? Two major barriers consistently emerged in discussions with investors: Regulatory Guide 97 (RG 97) and the Your Future, Your Super (YFYS) performance test. I raised both at the Treasurer’s Economic Reform Roundtable, and we are now beginning to see movement. That momentum must continue.
Quick refresher: RG 97 governs how fees are disclosed for certain financial products, including super funds and managed investment schemes while YFYS penalises funds that underperform relative to a benchmark.
The goals underpinning these rules - transparency and accountability - are sound. RG 97 has standardised fee disclosure, while YFYS has helped weed out persistent underperformers, contributing to the consolidation of the super sector from 88 funds in 2020 to just 56 in 2025.
After the Royal Commission exposed widespread fee-for-no-service practices in a disengaged market, stronger oversight was clearly warranted.
But the pendulum has swung too far. RG 97 has created an excessive focus on gross fees rather than net returns, while YFYS pushes investment toward benchmark-hugging strategies even where long-term returns may be inferior. Treasury’s own review has acknowledged these distortions. Research by Mandala released this month estimates that Australians’ retirement savings could be around $20,000 higher with better-designed versions of RG 97 and YFYS.
Perversely, in punishing underperformance we have also discouraged outperformance.
For complex, long-term investments such as venture capital, the consequences have been severe. Aggregate data show that proportional investment from superfunds in early-stage capital has fallen to about half of what it was a decade ago, despite the significant maturation of Australia’s startup sector over the same period. Super funds describe internal “fee-budgeting” processes where investment teams compete for a finite annual allowance of disclosed fees, crowding out higher-return asset classes.
The Super Members Council has suggested these regulatory settings may be holding back up to $50 billion in potential investment into young, high-growth firms - nearly double today’s allocation. At a time when bank lending is already skewed toward relatively unproductive mortgage credit, allowing our superannuation pool to follow an equally unambitious path risks locking in lower national prosperity.
That is why it was encouraging to see ASIC quietly announce earlier this month that it would bring forward its review of RG 97 to 2026–27 from its original 2029 timetable. While modest on its face, this decision signals a broader shift in how regulators and government are weighing the trade-offs between risk and growth. If we want to lift productivity and living standards, we need to be prepared to pursue both.
The Treasurer has also indicated openness to reviewing the YFYS performance test. That opportunity must not be wasted. Some have warned that would dilute the sole purpose of super - to provide for a dignified retirement - but I do not accept that higher long-term returns and strong member protections are mutually exclusive. The Treasurer has been explicit that both the sole-purpose test and a performance benchmark would be retained, and I agree they must be.
If we are serious about boosting productivity, fostering innovation and maximising financial wellbeing for Australians, we must become far better at navigating trade-offs and understanding opportunity costs.
Bringing forward the RG 97 review is a positive first step. Fixing the YFYS performance test must be next. These changes alone will not turn Australia into an innovation powerhouse, but they would materially reduce the barriers to doing the right thing for both retirement incomes and national economic growth.
We can and should hold our retirement system to a higher ambition than simply delivering the lowest possible fees