Principal and Agent Problems in Superannuation Funds: Discussion Paper No. 142

Abstract

Anxieties about the performance of superannuation funds and concerns about the safety
of superannuation entitlements poses the question of what individual contributors can do
to ensure their entitlements are secure. One difficulty for contributors is that they have little control over decisions relating to their superannuation fund; as these decisions are made by their agents over whom they have little effective influence. Principal and agent problems abound in superannuation and, in this paper, we explore the nature and extent of these problems as well as possible solutions. The nature of the principal and agent problems are more severe in defined contribution or accumulation funds, ACFs, by far the most common type of superannuation scheme in Australia. In these funds decisions are made by trustees who are the legal owners of the assets of the fund, but are required to act in the interests of the beneficiaries. Major decisions about portfolio composition determine the gross returns to the fund while other decisions relating to costs affect the net return to the fund and ultimately to the members.