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SYDNEY, NOV 28 AAP

November 28 2012, 1:20PM

Former prime minister Paul Keating says most of the people piling into self-managed superannuation do not have the savings or expertise to ensure they will be provided for in retirement.

Mr Keating also says the "promise" of superannuation is no longer about retirement lifestyle but instead must be about managing old age and disability as Australians live longer.

The former Labor treasurer and prime minister, responsible for the introduction of Australia's compulsory superannuation system, gave the opening address at the Association of Superannuation Funds of Australia (ASFA) conference in Sydney on Wednesday.

Mr Keating said Australia faced an unsustainable health burden from its ageing population, and one option to meet that burden would be lifting superannuation contributions to 15 per cent, with the additional three per cent to go towards meeting health costs and aged care.

"This final compulsory three per cent of wages could come in two ways, through the labour market via the SG (superannuation guarantee) ... or through a government pooled insurance fund," he said.

"The policy promise of superannuation is understood by people to be about having a good retirement but adequacy with longevity means that promise cannot be fulfilled," he said.

A "Phase Two" super system, geared to cater for two distinct groups: 60 to 80 year olds, and 80 to 100 year olds, is needed, he said.

Mr Keating warned that the growth in the self-managed superannuation sector, which now accounts for about 30 per cent of total super assets, was dangerous.

"Generally this group have unrealistic expectations as to how much is a good return," he said.

"Single-digit returns sour their enthusiasm for managed funds - they think they can do better themselves.

"Some sophisticated investors probably can ... but how many self managers have the required level of investment expertise?

And by investment expertise I do not mean falling prey to financial advisers."

Mr Keating said at least $600,000 in assets was needed to make self-managed funds a better proposition than a major fund.

He said there should be a mandated minimum level of investment in low-risk fixed interest assets such as bonds.

Mr Keating also slammed as "squalid" the moves of fund managers to invest too heavily in volatile equities in an effort to boost their fees while adding unacceptable risk for fund members.

"These risks were taken by managers who had limited direct exposure to the losses," he said.

"However, if the funds did return a significant amount, those same managers were entitled to performance fees - this is pretty squalid."

By Peter Trute, AAP Senior Finance Writer