Superannuation in Australia can be used for many purposes. As well as being able to access it for emergencies, many Australians also use their super in order to grow their investment portfolios. What if they were also able to use it to start a business?
After all, if superannuation is about growing one's wealth for retirement and putting a little something back into the economy, then this would seem like a no-brainer.
That's essentially what Scott Farquhar, co-chief executive of software company Atlassian, argued in October, when he spoke at the 2014 JJC Bradfield Lecture. Mr Farquhar outlined the way in which smarter superannuation rules could help Australia retain local business talent.
Australian businesses need capital
While venture capitalism and "angel investing" — wealthy individuals investing in young businesses — is trending up, there is still a vacuum of capital in the Australian market, Mr Farquhar told the audience.
Indeed, according to findings from 2013 by McCrindle Research, only slightly more than half (51 percent) of all new business starts survive their first four years.
"For many Australians, the entrepreneurial dream is still alive but as demonstrated by the survival rates of new businesses, without better support, only a minority will achieve success," the report stated.
Similarly, the Australian Bureau of Statistics revealed this year that during the 2012-13 financial year, the exit rate of all Australian businesses grew to 14.1 per cent, up 1 percent from the previous year — or 22,190 businesses.
It's therefore clear that businesses in Australia could benefit from an added injection of capital to support them. And this is not just in their early, fledgling years. According to Mr Farquhar, it was particularly difficult for a company to find local financing once they moved past an early stage.
Superannuation a key source of capital
Mr Farquhar stressed that Australian superannuation was essentially one, large source of capital sitting unused. At the moment, it totals $1.8 trillion worth of savings, he pointed out, while only 0.0006 percent of it was invested venture capital. By contrast, the US puts approximately 2 percent of its pension funds toward venture capital.
"So we have one of the best savings pools in the world, and we should make it easier to invest it in areas that will have huge productivity gains for the nation," Mr Farquhar said.
He went on to stress that current disclosure laws were making it tougher for superannuants to invest in start-ups, by requiring them to not only disclose the details of what funds they invest in, but the investments those funds in turn make. Mr Farquhar suggested this rule be scrapped.
"Without this, we will further erode the capital base, see the funding move offshore, and we will see more of the promising start-ups of tomorrow follow," he concluded.
If superannuation holders have greater leeway to invest their money in smart, productive areas, as Mr Farquhar points out, the outcome could well be a win-win-win — for the investor, for the business and for the wider Australian economy.