New S&P Report Says Australia’s Pension System Provides Roadmap for Strengthening Asian Capital Markets

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Asian economies with an eye on the future could benefit from a closer look at the development of Australia’s superannuation industry, according to an executive comment released today by Standard & Poor’s.  Moreover, Australia’s experience in creating a well functioning pension system provides a way to overcome current shortfalls in financial services expertise, corporate governance, and risk management across the broader region.

Standard & Poor’s believes that, other than creating a social welfare net, the most important benefit in developing a successful pension system is the way that it can help strengthen domestic capital markets.  According to John Bailey, Managing Director Standard & Poor’s for Pacific, in many parts of Asia, undeveloped financial systems are a major weakness and prevent effective intermediation between Asia’s large savings and investment needs. In contrast, the fund flows into compulsory superannuation in Australia has provided a steady stream of investment opportunities and has provided a strong source of demand for equity securities.

“The development of Australia’s superannuation system has built up some important wealth-management skills, such as equities and fixed income analysis, funds management, trustee services, and clearing and settlement skills, that have significantly enhanced Australia competitiveness,” Mr. Bailey says. “These skills are critical building blocks in creating a strong economy, and would be a major benefit to emerging economies in Asia”.

Standard & Poor’s also believes that a strong pension system is an important means of funding infrastructure projects. “In Asia, many infrastructure projects have found it difficult to find funding from the domestic capital markets” said Mr. Bailey.  “In contrast, the Australian system has a successful track record in helping generate funding through bonds and syndicated loans for major infrastructure projects, such as utilities, toll roads, and hospitals. Infrastructure is seen as a natural fit for superannuation investment because of its predictable cash flows.”

While the report recognizes that the Australian system faces a number of challenges, it offers several key insights about developing strong social security and pension systems. “If Australia can free up its financial services sector and become more outwardly focused, there could be some significant export of financial services skills and know how into the broader region,” Mr. Bailey said.

The executive comment, “Does Australia’s Pension System Chart a Future Course For Asia?” is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. Members of the media can contact Sharon Beach for a copy.

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