On 6 October 2020, Treasurer Josh Frydenberg delivered the Commonwealth 2020-2021 Budget.
For the superannuation announcements please click on the following links:
On 6 October 2020, Treasurer Josh Frydenberg delivered the Commonwealth 2020-2021 Budget.
For the superannuation announcements please click on the following links:
The Australian Business Review
16 september 2020
The super system is at a crossroads with the combination of the $33bn early access drain, the withdrawal of banks from wealth management and the decline of other traditional retail players in super.
When the history books are written about superannuation in Australia, one question to be asked is whether 2020 will be a high-water mark for the sector.
Overall, total new contributions going into super will continue to increase with the compulsory super contribution scheme, but the combination of the early access to super scheme, questions over the move to a 12 per cent compulsory guarantee levy and new fears that the October budget could allow more access to super for housing add up to an inflection point for the industry.
As Industry Super Australia chief executive Bernie Dean says, the worry is that having seen the success of the early access to super scheme since April this year, the government may be tempted to open up super for all sorts of short-term stimulatory means — sugar hits that limit the amount of money the government has to pay out of its own budget.
As AMP struggles and the banks exit the wealth management business and the private wealth management sector is still coping with the fallout from the royal commission, the traditional private sector companies and lobby groups that have championed the case are distracted or battling to get cut-through against rising anti-super voices.
Having to have two former prime ministers in Paul Keating and Kevin Rudd argue the case to continue the move to 12 per cent was a sign of the limited voices arguing in favour of the compulsory super system, which has been the envy of the world.
Until recently it appeared to have bipartisan support, introduced by Labor and supported by Liberal governments, but now that seems to be eroding.
There was a time when the total super asset pool continued to set records, going through the $1 trillion and $2 trillion figures barriers, underwriting a massive funds management industry in Australia and retirement savings-oriented businesses.
By the end of last year, the total assets in super hit $2.951 trillion, up from $2.88 trillion in June last year.
But the pendulum has swung back this year. Total assets in super funds at June were down to $2.864 trillion despite the sharemarket holding up well in the face of the pandemic.
The latest figures from the Australian Prudential Regulation Authority show that total contribution flows into super funds rose from $114.7bn for the year to June 30 last year to $120.6bn for the year to June 30 this year.
But total benefit payments — including those paid as a result of the early super release scheme that started on April 20 — rose from $76.5bn last financial year to a record $100.4bn for the financial year just ended.
This meant net contributions flows were down by an unheard of 38 per cent from $38bn to $23.5bn.
Total benefits paid out in the June quarter this year of $37bn were almost double the $21.1bn paid out in the March quarter and the $20.5bn in the June quarter last year.
The June quarter payouts included $18.1bn from the early release scheme with 2.4 million Australians choosing to draw on their super for an average amount of $7503.
Australian Prudential Regulation Authority data shows total drawdowns under the early release scheme are now $33bn, with more than 3.2 million Australians choosing to put their hands in their own retirement savings for an average payment of $7678. This means another $15bn flowed out of the system in the two months from July 1 to September 6.
Rather than falling, the average amount accessed by those going to the well a second time (allowed from July 1 until the end of the year) rose to $8427 compared with $7402 for the first application. In short, the super drain has continued with people who do access their super wanting to take out more.
No one can blame people doing it tough from wanting to access their super to pay short-term bills.
But the whole point of our super system is one of compulsory savings to provide income for retirement. The danger is that the government’s early access scheme opens a Pandora’s box of new reasons to access super that could, over time, undermine the system.
There have always been those who have been critical of compulsory super, introduced almost 30 years ago, for ideological reasons. The system, after all, was based on forcing workers who might not save to put money aside for their retirement.
The Treasury also has been wary of the total tax forgone in the super system. But the tax breaks are part of the quid pro quo of forcing people to lock up a proportion of their funds.
With some tweaks to cut back on concessions to the wealthy the system appeared to be holding up well, generating a huge pool of national savings that was being used to help stabilise our financial system in times of crisis and invest in infrastructure and key assets such as electricity, ports and airports.
Now the concern is that the debate has reached a tipping point and super is regarded as a honey pot to be raided.
There is no magic pudding. The less put away for retirement, the worse off people — particularly lower-paid people — will be when they stop working. The value of compounding means that $20,000 taken out of super has a net cost of many times that at the end of a 30-year career.
Another factor is that the system has allowed the rise of a new section of the financial system — the $700bn industry super sector — while the retail super sector has been hit by the royal commission and other issues.
The Jetstar of the super sector, industry super funds have not had to deal with the legacy issues of the private sector super funds, having lower cost structures and a younger membership base as well as not having to pay out profits to shareholders. Their strong cashflows also have allowed them to deliver good returns as they could safely lock in their investments over a longer timeframe.
But there is no great love for the industry super fund sector in some conservative parts of politics despite the fact, by and large, they have delivered well for their millions of members.
The super system is at a crossroads with the combination of the $33bn early access drain, the withdrawal of banks from wealth management and the decline of other traditional retail players in super.
ASSOCIATE EDITOR (BUSINESS)
29 August 2020
Dennis Shanahan – Political Editor
Scott Morrison and Anthony Albanese have identified two policy and political issues — superannuation and aged care — that have fresh currency and urgency as a result of COVID-19. They could have as much impact electorally as the handling the coronavirus virus itself.
The competence demonstrated in dealing with the health threat and, perhaps more important, the economic recovery is dominating the national agenda and will do so during the federal election, which could be held late next year.
But the confronting and transformative impact of the coronavirus on administration and public attitudes has changed the nature of fundamental issues that existed before the pandemic.
The Prime Minister can see the potential damage to his standing and the credibility of the Coalition created by the disastrous death rate in aged-care homes as a result of Victoria’s wave of new cases. There have been more than 340 deaths in care.
The Opposition Leader sees aged care as a pivotal point politically. He is single-mindedly pursuing Morrison for being responsible as the commonwealth leader, arguing the Prime Minister has been too slow to respond to earlier warnings and even has been heartless by pointing to 97 per cent of aged-care homes in Australia (more than 90 per cent in Victoria) being COVID-free.
But even Albanese sees the importance of changes to superannuation rules and regulations beyond the pandemic. In a national speech on Thursday about aged care that prosecuted a case of “neglect”against Morrison before, during and after the coronavirus outbreak, the only other issue Albanese raised was superannuation.
The Opposition Leader said it was “sneaky and wicked” of Morrison to allow early access to superannuation funds for workers affected by coronavirus because those with the lowest funds — women and young people — were taking out the most. He said 600,000 accounts had been reduced to zero.
“What’s happening right now is casting a shadow so long it will darken future generations,” Albanese said.
“It will increasingly fall to them to prop up budget spending ever more on aged care and pensions. This means either that future workers will face higher taxation or that future government services — including the Age Pension — will come under pressure.”
He defended Labor’s legacy of compulsory superannuation payments, saying: “Universal superannuation was built to avoid this problem. It was never designed to be a mere safety net.”
Yet Morrison detects a public attitudinal change towards compulsory superannuation payments and preserving super savings, where there was once an almost monolithic acceptance of untouchable superannuation and the aim of self-reliance for retirees through compulsory super.
Like the brutal reality of deaths in aged-care homes, the surprise emergency access to superannuation funds to help those who have lost jobs has struck a deep chord in the public that will colour future political decisions.
Almost by accident Morrison discovered a deep change in attitude when speaking on radio about the early access to superannuation and used the line that “it’s the people’s money, not the fund managers”.
The prime ministerial switchboard lit up strongly enough to supplant the prime ministerial Christmas tree, and a visceral reaction confirmed what the figures were telling the Coalition.
As of this week more than 2.8 million Australians had withdrawn superannuation savings of $34bn early, and the bulk of applicants were low-income earners, essentially women and young people, who preferred to take what they had on hand rather than wait for decades and face the loss of funds through fees.
The reaction, double the Treasury estimate, was testament to a pent-up demand from the public to access their superannuation. It was a signal to Morrison and Albanese that a previously almost unassailable Labor stranglehold on superannuation policy and co-operation with industry super funds within the public and the Senate had been weakened.
The emergency superannuation access powers have broken the banks’ super debate, and a politically and ideologically frustrated Coalition is moving to take advantage.
Apart from a number of legislative victories in the Senate on superannuation and plans for more changes to come there is also the broad question of whether the 0.5 per cent increase in the superannuation guarantee contribution legislated to take effect from July 1 next year will go ahead as promised.
There is enormous pressure from within the Coalition, employers and business to freeze the contribution at the current 9.5 per cent in the name of helping economic recovery and putting money in workers’ pockets.
Using the early access issue, Morrison is building a campaign that it’s better for workers to control their money and that industry superannuation funds aligned with unions and Labor are “misusing” fund members’ money for ends outside their responsibility to provide returns to workers.
After the passage of legislation in the Senate to allow more choice for workers on which fund they use, Morrison told parliament: “It’s important legislation which understands that people’s superannuation money is their money — not the Labor Party’s, not the industry fund manager’s, not any fund manager’s.
“We believe it belongs to them because they worked for it, they earned it, they saved it. And when they need it in a time of pandemic we’re going to make sure they can get access to it.”
Morrison claimed Labor MPs were “like puppets on a string on behalf of the union fund managers and they trot out the lines on their behalf. But we have a message for them: it’s not your money. We won’t let you take it from those who’ve earned it when they need it.”
Greg Combet, chairman of Industry Super Australia and a former minister in the Rudd and Gillard Labor governments, told Inquirer that early access for everyone to their superannuation savings for any purpose before their retirement “would be a disaster”.
He also said any backtracking from the legislated rise in the super guarantee would be a “breach of faith”.
“The rise in the superannuation guarantee was an election promise which has been reconfirmed multiple times by the Prime Minister, and it has been legislated by the parliament,” he said. “It would be against the interest of superannuation fund members and as a consequence the industry super funds would oppose such a move by the government.”
He also agreed with Albanese and prepared for a real battle ahead by declaring “ordinary Australians … will have to work years longer to achieve the same level of superannuation savings. Taxes would also need to be higher in order to meet increased demands on the pension.
“The 0.5 per cent increase in the superannuation guarantee due in July next year would only equate to about a $5 per week increase in contributions for a person on $50,000 per year. This is affordable.
“Anyone with any knowledge of the real world knows that if the super guarantee rise does not go ahead, there will be no compensating wage increase. All that will happen is that people get no wage increase and no super.”
Albanese accused the Coalition of “setting us up for a future where millions of Australians are condemned to a very lean retirement”.
“The Liberal Party’s ideological prejudice means they certainly don’t want workers to have self-sufficiency in capital and have undermined superannuation at every opportunity,” he said.
But Morrison and Josh Frydenberg sense a change in the public attitude and can point to seven separate pieces of superannuation legislation passed recently directed at loosening the union and Labor grip on the resources and influence of the industry super funds.
In the lead-up to the seminal debate next year on the rise in the compulsory super contribution there will be more superannuation debates, including the Coalition’s claim that millions of dollars of members’ funds are being “misused” in payments to unions as “sponsored organisations” and marketing and entertainment.
It’s all part of long debate in a changed atmosphere that will be as important as aged care and the pandemic recovery.
29 August 2020
Adam Creighton – Economics Editor
The biggest policy battleground over the next year will almost certainly be superannuation.
The government is sitting on the retirement income review, a recommendation of the Productivity Commission from 2018 that is bound to raise troubling questions for the super sector.
Aware of the political risks of tinkering with super, the government instructed the panel not to make specific recommendations, but the facts alone should make it obvious what needs to be done.
The review will probably show, just as the Henry tax review did a decade ago, that lifting the superannuation guarantee to 12 per cent, as is currently legislated, will cost far more in fees and forgone tax revenue than it could ever save in age pension outlays.
Fees are about $30bn a year, concessions are about $36bn, while age pension savings are, very generously, less than $10bn a year.
Proceeding with a policy that’s a net drain on public finances, especially when budget deficits and debt have ballooned, is questionable. The review will also make it clear mandatory super contributions are paid by workers, out of their gross incomes, rather than by employers. The genius of Paul Keating’s innovation, compulsory super, is that it appears to workers as if contributions are made by their employers.
But the economic incidence is very different from the legal incidence. Employers pay workers’ income tax, on their behalf, yet few believe an increase in income tax would be borne by the boss.
From the employer’s point of view, employees’ income tax and superannuation contributions are the same. The government says what proportion of workers’ pay goes in tax, super and disposable income.
In the short term an employer might choose to absorb an increase in the compulsory savings rate, but in the long run the government cannot dictate how much a business will spend on payroll. It must by definition mean lower take-home pay for workers.
Absent these two arguments, the super industry is likely to fall back on a paternalistic one: people don’t save enough without compulsion. While savings myopia might feel right, it’s empirically wrong. People are simply not spending their accumulated savings in retirement and instead are leaving significant bequests, research shows.
To be sure, uncertainty about how long we will live naturally induces precautionary saving, although this becomes less and less a justification the older we become (and the probability of dying increases).
A major study of 10,000 age pensioners in 2017 found that at death the median pensioner still had 90 per cent of their wealth compared to the start of their retirement. “On average, age pensioners preserve financial and residential wealth and leave substantial bequests,” the authors concluded.
We are hardwired, whether for cultural or biological reasons, to protect or grow our wealth. There’s nothing wrong with that, but it does undermine the claim that people aren’t saving enough. On the contrary they might be saving too much.
Grattan Institute analysis of the Survey of Income and Housing conducted by the ABS similarly found retirees typically maintained or increased their non-housing wealth through their retirement.
“Wealth appears to have dipped only because the global financial crisis reduced capital values, rather than because retirees drew down on their savings,” says Grattan.
“The bottom third by wealth of the cohort born in 1930-34 (aged 71-75 in 2005) increased their non-housing wealth from $68,000 in 2005 to $122,000 in 2015,” the authors pointed out.
The government has known this tendency for some time, too. As social security minister in 2015, Scott Morrison pointed to research by his own department that showed 43 per cent of pensioners increased their asset holdings during the last five years of life, and a quarter maintained them at the same level. “Less than a third of pensioners actually saw their assets decrease in their last five years,” he said.
What is the point of providing concessions if the savings are not being used to fund retirement but are simply passed on? It would be better to scrap the concessions, pay a bit more in age pension, and use the difference to radically cut income tax rates for everyone.
While the Coalition government is unlikely to propose anything like that, there’s an argument for being bold. The fact around three million Australians have just accessed their superannuation is a massive chink in the armour of compulsory super.
The government could make super voluntary, in effect offering a significant pay rise to any worker who wanted it. Remember, employers don’t care whether workers’ pay is sent to a super fund or the worker’s bank account.
The savings could be used to make significant cuts to income tax, or make the age pension universal, thereby scrapping the means testing that has so twisted the incentives of the over 65s. About 80 per cent of retirees already receive the full or part age pension. A universal pension would remove the significant disincentives to work that pensioners face, dramatically simplify retirement and end the game of retirees’ engineering, quite understandably, their affairs in order to receive a part-pension.
There are powerful political reasons for being bold, too.
Labor will be hoping the government does seek to delay or stop the increase in the super guarantee. That would give the party, rendered irrelevant by the coronavirus, something to fight for, even if it were for the vested interest of the super industry rather than working people. Indeed, a senior Liberal once told me the biggest supporters of compulsory super were older, wealthy Liberal voters, who believed the poor should be forced to save for their retirement so as not to be a burden. The median worker, let alone the poor, can never save enough to provide the equivalent of an age pension.
Regardless, facing a hysterical campaign from Labor and the doubts among its own base, it could lose the debate.
The government needs a positive plan rather than promising to stop something from occurring. Dangling the carrot of an optional near 10 per cent pay rise for workers or promising a universal age pension would be a significant proposal with plenty of merit.
The government’s successful early access scheme, which has seen around three million people withdraw almost $40bn, has delivered a body blow to compulsory super. Now is the time to reform it.
15 August 2020
Olivia Caisley – Reporter
Patrick Commins – Economics Reporter
Additional Reporting: Joe Kelly
Scott Morrison has given a strong signal he is no longer wedded to increasing the super guarantee to 12 per cent, acknowledging it could suppress wages and potentially cost jobs, as the government weighs up the findings of an independent review into retirement incomes
The Prime Minister on Friday noted the coronavirus pandemic was a “rather significant event” which had occurred since he pledged at the last election to continue with the scheduled increase in the super guarantee, due to reach 12 per cent by 2025.
On Friday, Reserve Bank governor Philip Lowe warned that increasing the super guarantee would “certainly have a negative effect on wages growth” and that, if it went ahead, he would “expect wages growth to be even lower than it otherwise would be”.
Dr Lowe argued there could be flow-on effects if the guarantee was increased, telling the standing committee on economics it might reduce take-home pay, cut spending and potentially cost jobs.
Mr Morrison later said he was “very aware” of the issues raised by Dr Lowe and argued they should be “considered in the balance of all the other things the government is doing”.
The warning from Dr Lowe came as an inquiry heard that nearly three million Australians had applied for early access to their superannuation, with $33.3bn already approved. Labor has accused the government of undermining the superannuation system through the early access program, with Anthony Albanese warning that too many young Australians had exhausted their super balances.
Dr Lowe also criticised the states for not carrying their “fair share” of the fiscal burden, saying they were preoccupied with their credit ratings rather than job creation. He repeated the RBA’s baseline forecasts for the unemployment rate to reach 10 per cent by the end of the year and expected the jobless gauge to “still be around 7 per cent in a few years’ time”.
“The challenge we face is to create jobs, and the state governments do control many of the levers here,” he said.
Mr Morrison seized on the call to say the federal government had done the “seriously heavy lifting” to navigate the pandemic and urged state and territory leaders to “provide further fiscal support”. He said the states had provided “about $45bn in both balance sheet and direct fiscal support” but the federal government had provided “about $316bn”.
Dr Lowe said that, with the cash rate at a record low of 0.25 per cent, further monetary policy easing was unlikely to gain any traction in stimulating demand. Instead, fiscal policy and structural reform would be the primary tools to carry the country through the crisis and lay the foundations for recovery.
He identified measures such as removing stamp duties — which he called a “tax on mobility” — and industrial relations reform, echoing calls from the Productivity Commission this week.
“There’s a process going on at the moment to try and make the enterprise bargaining system more flexible, so we can get back to a world where businesses and employees can get together and make their businesses work effectively, rather than be weighed down by process,” he said.
Dr Lowe warned Australians to be prepared for a “bumpy and uneven” recovery, and argued the second wave of coronavirus infections and new restrictions meant the bank was “not expecting a lift in economic growth until the December quarter”.
The Weekend Australian
1-2 August 2020
Patrick Commins – Economics Correspondent
Baby boomers are alone among the generations to suffer a fall in income through the COVID-19 crisis, according to Commonwealth Bank analysis of three million households who bank with the lender.
The unprecedented level of government support in response to COVID-19 and the massive take-up of the early access to super schemes boosted average household income overall by 4.2 per cent over the year to the June quarter, the research shows.
Salary income dropped 6.6 per cent on average as the health crisis put hundreds of thousands of Australians out of work. But a 54 per cent surge in average incomes from government benefits versus a year earlier, and a 64 per cent jump in “investment income” — which captures payments from the first withdrawal of up to $10,000 from super under the special early-release scheme — has led to what CBA senior economist Kristina Clifton called a “positive income shock”.
Still, spending was down close to 9 per cent in the June quarter from a year before as households hunkered down amid the first recession in close to three decades.
“We can see that on average people are saving a lot of money at the moment,” Ms Clifton said.
While the average income among the three million households has climbed, a breakdown by generation reveals that boomer households have on average experienced a 1.4 per cent drop. Meanwhile, the two youngest cohorts — Generation Z and millennials — enjoyed the biggest increases, at 8.9 per cent and 6.7 per cent respectively. The average income among Generation X households climbed 3.2 per cent over the year to the June quarter, while older Australians had an increase of 2.8 per cent.
Ms Clifton said boomers had not received as much of the emergency government support packages. Nor had they made as much use of the special rules allowing early access to their retirement savings.
The bank’s data showed a 50 per cent average surge in government benefits across households, but boomers had received a comparatively lower 24 per cent boost. The three younger generations received in the order of 40 per cent more from the government in over the three months to June versus the same period a year before.
And while the overall average household’s level of spending fell substantially from last year to this, Gen Z spent nearly 4 per cent more, and millennials an extra 1 per cent. Last week Treasury released figures suggesting part-time and casual workers on the $1500 JobKeeper payment were being paid in aggregate $6bn more than they were earning before the crisis.
13 June 2020
Sydney Morning Herald
Shane Wright – Senior economics correspondent for The Age and The Sydney Morning Herald.
Retirees are facing a massive hit to more than $100 billion worth of vital income streams as the coronavirus pandemic crushes their superannuation, personal savings and share dividends.
Older Australians say the retirement system is in crisis and leaving them financially vulnerable, forcing them to call on the Morrison government to consider changes in areas such as the age pension, deeming rates and access to the Commonwealth Seniors Health Card.
The Alliance for a Fairer Retirement System, representing millions of retirees and older investors, has written to key finance and welfare ministers urging reforms including to measures previously introduced to take pressure off the federal budget.
In the letter, obtained by The Sun-Herald and The Sunday Age, the alliance says the coronavirus pandemic has dramatically hit retirees dependent on investment income to such an extent it now put the nation’s economic recovery at risk.
“Retiree spending, and willingness to spend, will have critical impacts on the economy in any post-stimulus recovery phase,” the alliance said.
“However, under the current market conditions, there is a risk older Australians will further withdraw from the economy, slowing the recovery. Retirees are unlikely to have the confidence to spend if they continue to face significant impacts on their income.”
Retirees are facing a string of inter-related hits to their finances. Company dividends are being slashed by many listed firms in a development that JPMorgan estimates will cut income to investors by $68 billion in 2020.
Falling interest rates, while beneficial to those with mortgages, are leaving people dependent on their savings cash-strapped.
Interest rates on savings and term deposits continue to fall. In the past week, the average rate on a five-year term deposit edged down to a fresh record low of 1.09 per cent.
On a one-year term deposit, the average interest rate fell a quarter of a percentage point last week to a record low of 1.2 per cent.
Income from rental properties have also collapsed with many tenants unable to cover their rent.
The alliance said it all meant many retired Australians’ incomes were being stripped away by the impact of the coronavirus and the situation “could extend for years”.
The government has already reduced the deeming rates – the assumed rate of return made on investments that affects the pension income test – due to the fall in global interest rates caused by central banks trying to protect their economies from the pandemic.
But the alliance wants the government to go further, starting with another cut in the deeming rate.
It also wants an automatic revaluation of assets used by Centrelink to determine the pension accessibility for retirees, arguing the last revaluation was done at the peak of the share market before the start of the pandemic.
The alliance has also called for the government to re-think the taper rate changes it introduced in 2017 that helped save billions in pension payments. The alliance says those changes now mean that couples who may have almost $900,000 in assets are up to $1000 a month worse off in income compared to a couple with $450,000 in assets.
While people of retirement age are entitled to the Commonwealth Seniors Health Card if they have an income of less than $55,808, the alliance argues many self-funded retirees are unaware of their eligibility to the scheme. It wants all retirees to have access to the card and for the government to promote its availability.
The federal government is nearing the end of a review of the retirement income system, prompted by a Productivity Commission review of the superannuation sector, although its reporting date has been pushed back to July 24 due to the pandemic’s impact on agencies.
The Australian Business Review
27 May 2020
Gerard Cockburn – Business Reporter
Self-managed super funds suffered a $70bn hit from the market turmoil in the March quarter, putting further strain on the retirement savings of investors already battling a crash in interest rates and a rental freeze.
New figures released by financial regulator APRA outline the damage to superannuation with nearly $230bn sliced from to the nation’s super pool, putting the sector back 12 months in total assets under management.
Industry funds, which are generally more exposed to infrastructure, suffered a $54bn hit to asset values in the three months to the end of March, while retail super funds with their higher exposure to riskier assets such as shares were savaged with an $80bn drop in asset values.
But SMSF investors, who generally are exposed to property, shares and cash, suffered the worst hit since the global financial crisis with total assets falling by 9.4 per cent in the March quarter.
The global meltdown in markets triggered an aggressive policy response from central banks around the world, slashing already rock bottom interest rates to new lows.
APRA’s latest figures show the country’s $3 trillion superannuation industry contracted 7.7 per cent, with $227.8bn being lost over the March quarter.
The figures don’t capture the federal government’s early withdrawal of super scheme, which allows Australians to access up to $10,000 both this financial year and the next.
Industry funds are expected to see an additional outflow of funds into the June quarter.
National Senior Australia chief advocate Ian Henschke, said self-funded retirees were still coming to terms with the economic shocks sparked by COVID-19, with some members only just recovering from losses incurred during the global financial crisis.
“They (self-funded retirees) feel they are being forgotten and must simply accept this,” Mr Henschke said.
“They are not necessarily wealthy, but receive little or no assistance and despite the huge hit to their income are not eligible for the pension because their asset values have changed little so far.”
Mr Henschke noted some SMSF retirees were being forced to sell shares at low prices just to supplement foregone income — including relief on rental properties — further diminishing the size of their portfolios.
SMSF Association policy manager Franco Morelli said APRA’s figures were lower than expected within the industry, which had estimated the hit to the sector could see assets fall by as much as 30 per cent.
“The next quarter up to June will be interesting, as there is so much uncertainty,” Mr Morelli said.
However, he said the SMSF sector could react quicker to rebalance than other sectors. “We have a much larger cohort of individuals allocated to more liquid funds,” Mr Morelli said.
The halving of the pension drawdown rate by the federal government in March has helped self-funded retirees to top up their pension.
Total superannuation assets at the end of the March quarter stood at $2.73 trillion — nearly twice the nation’s economic output.
Public sector funds were the relative best performers during the March quarter with total assets falling just under $10bn to $523.6bn.
Industry funds make up the single biggest sector with $717bn under management, while the collective assets held by SMSFs fell back to $675.6bn. Retail funds totalled $558bn at the end of March.
Superannuation contributions rose 6.9 per cent to $121.1bn compared to the same quarter in the previous year, while the total paid in benefits was $85.8bn, a rise of 14.5 per cent.
Net inflow of funds compared to March last year increased by 27.7 per cent to $45.4bn.
Self-managed Independent Superannuation Funds Association managing director Michael Lorimer said the impacts to financial markets were experienced at the tail end of the quarter. He said APRA’s next round of data would likely show some signs of recovery, as market performance had started to rebound.
21 May 2020
Peter Van Onselen
Spare a thought for self-funded retirees in these difficult times. Not only are they in the age bracket most at risk from the virus, but their financial wellbeing in retirement is being put at substantial risk.
The collapse in the stock market, including among most blue chip stocks, is just the start of their financial pain. These big businesses, even if they survive, aren’t likely to pay out the dividends they once did for years to come, if ever.
The financial plans of self-funded retirees are built around dividend projections which therefore no longer apply, and with interest rates so low its not as though they can simply transfer their saving into cash accounts and do any better.
The RBA cash rate is at a record low.
The difficulties self-funded retirees face in low interest rate environments is the flip side to the benefits those of us with homes loans get from lower rates for borrowing.
Lower interest rates has become a way of life, but the prospects of rates surging north again anytime soon seems unlikely. Even if it does happen, it will only be in conjunction with inflation, which erodes spending power at the same time.
On the policy front, there isn’t much there for self-funded retirees to cushion the blow. While Jobseeker and JobKeeper are doling out tens of billions of taxpayers dollars to keep working age Australians in jobs or at least above the poverty line, self-funded retirees are getting no such support.
Even pensioners have received a boost to their pensions to help them get through these tough times. But the self-funded retirees who voted en-masse against Bill Shorten and his franking credits policy have become the forgotten people among Coalition supporters.
Their loyalty hasn’t translated into being looked after now. And because Labor is still licking its wounds from last year’s May election defeat, it hasn’t exactly been inclined to highlight their plight and put pressure on the government to do something to help this large voting cohort.
Rather, Labor has focused its attention on the plight of many casuals who are missing out on JobKeeper, and the university sector which isn’t eligible for the payments. Or childcare users who would benefit from free childcare continuing for longer. Or workers for foreign companies ineligible for JobKeeper. Or indeed anyone who might benefit from Newstart not returning to the low levels it was pegged at previously.
What about self-funded retirees? They truly are the forgotten people in this crisis. Taken for granted by a government that would not have won the last election had it not been for their support. Forgotten by an opposition that has written them off politically.
While I have long been critical of the unsustainable tax breaks for many older Australians, especially those with very large savings, the self-funded retirees who only just miss out on a part pension and concession card benefits are the ones caught in the middle right now.
As Ian Henschke from National Seniors has pointed out, some self-funded retirees — because of this crisis — are now drawing on an annual payout from their investments lower than the annual pension. To survive they would need to draw down their savings right at a time when their value has been halved. He wants to see discussion about legislating a universal pension in the wake of this crisis to ensure that can’t happen.
Whether that is a long-term solution or not is debatable — indeed whether it is fiscally viable is highly debatable. But there is little doubt this cohort of senior Australians deserves more than the cold shoulder.
Especially from a Coalition government.
Peter van Onselen is a professor of politics and public policy at the University of Western Australia and Griffith University.
19 April 2020
Scott Morrison may well get his wish if private equity, backed by industry superannuation fund money, does bid for Virgin Australia, but not the way the Prime Minister intended, which has once again politicised super.
For the super sector, that is the problem of being the creation of politicians that has meant being subject to their often hypocritical whims to suit the purpose of the day. A few weeks ago the government thought it was clever opening the way for people to withdraw money early from their superannuation.
Josh Frydenberg noted “it’s your money” so you can get access to it if you are caught in a financial mess because of the government-imposed shutdown.
When the industry funds said they could face losses of up to $50bn in cash withdrawals, the Minister for Superannuation, Jane Hume, saw it as another leg in the push to consolidate superannuation funds.
Hume argued that some funds like Hostplus and REST were too reliant on the hospitality and retail sectors and, like others, had a concentrated pool from which to raise funds because industry fund contributions were often tied to industry industrial relations awards.
Diversification, she said, should be the rule in membership and investment strategy.
Then Morrison came up with the bright idea that specialist industry superannuation funds had plenty of cash so someone like the TWU, with a heavy dose of Virgin Australia workers, should be diverting funds into the airline.
The three pronouncements from the relevant ministers underlines the political bias against industry funds, breathtaking hypocrisy and, more importantly, a dangerous ignorance about how funds manage their money.
By law, managers must invest for the long term to boost member returns and this fiduciary duty would by definition prevent a fund making a national interest investment because that would suit the prime minister of the day.
When the government opened the door to early withdrawal of funds last month it not only risked members losing up to $84,0000 in lifetime savings but risked the funds losing the ability to invest to support corporate Australia.
Somehow all of this was forgotten by Morrison.
That said, it would not surprise if an industry fund like AustralianSuper provided capital to support a private equity bid for Virgin.
AustralianSuper has a stated policy of owning bigger stakes in fewer companies, which is why it backed BGH’s successful bid for Navitas and unsuccessful bid for Healthscope.
AustralianSuper investment chief Mark Delaney is keen to use the fund’s equity investments to support Australian companies with long-term capital.
This would be most company boards’ dream come true.
It would help if Canberra maintained a more consistent approach to superannuation even amid these extraordinary times.