“We’ve seen a skeleton of what the proposals may look like… I do think that there are some challenges when you’re looking at a passive benchmark and holding people to account where the margin of error that’s being proposed is relatively small,” Jonathan Armitage, chief investment officer for MLC AM, told the Financial Services Council’s inaugural Investment Summit.

“Taken at face value, it would suggest that you would see superannuation funds wanting to avoid that margin of error and then coalescing around some sort of mean based on those passive benchmarks.”

Kate Howitt, portfolio manager for Fidelity’s Australian Opportunities Fund, warned that shifting the balance of capital towards passive could hurt Australian companies trying to invest and grow while “herding around benchmarks” risked creating unforeseen consequences and severe sequencing risk.

“If you’re someone who’s at a critical period and you go through what we went through in March, that could be very devastating to your financial wellbeing if your trustee has no ability to diversify you away from those sorts of risks,” Ms Howitt said.

“If we really are thinking about what’s right holistically for members, then we need to be really careful about not creating this sequencing risk from having exposure to the volatility of listed markets.”

Felicity Walsh, head of sales at Franklin Templeton, also said that some superannuation clients were now holding off on investing in unlisted assets until they knew they wouldn’t be penalised for it.

“We’re already hearing those whisperings, and clearly that’s not good in trying to build a diversified portfolio for retirees,” Ms Walsh said.

“I think a lot of this comes back to short-termism, and retirement is a long-term investment. Although the proposals are around an eight-year cycle, that’s still pretty short. If you look at market cycles, they’re getting longer and longer.”

Ms Walsh also believes that the early super release means a “precedent has been set” and that funds could be called upon in future despite the end of the scheme, while Ms Howitt warned that the loss of compounding savings “will be very significant” for those who withdrew their super.

“That ultimately will fall back on the government through the age pension,” Ms Howitt said, adding that it risks becoming a populist sticking point while “storing up problems for the future”.