Category: Features

Superannuation fund savers set to end year in the black: SuperRatings

The Australian Business Review

16 December 2020

David Ross

Australian super funds are on the track to end the year in positive territory, with returns buoyed by a 4.9 per cent sharemarket boost in November.

The dramatic turnaround in retirement savings follows rising optimism around the success of COVID-19 vaccine trials coupled with record rock bottom interest rates which has lifted the market from the March sharemarket collapse after COVID-19 hit the global economy.

Figures from super research group SuperRatings shows the median balanced fund – the most widely held investment option – has delivered a 2.3 per cent return since the start of 2020, despite the.

New data suggests funds may be on track to close the year as much as 3 per cent up on where they started, despite the first months of the pandemic sending balance fund down as much as 10 per cent.

The eighth consecutive month of positive returns meant the median balanced option was “on track to finish the year in positive territory”, SuperRatings said.

Super funds have bounced back strongly, booming 7.5 per cent since July, reversing falls through February and March as the pandemic rocked markets.

According to SuperRatings figures equities-exposed median growth options delivered an estimated 6.2 per cent return in November and 2.4 per cent over the calendar year.

The median capital stable option, which includes defensive assets such as bonds and cash, returned only 2 per cent in November and 1.7 per cent for the year.

Chant West, a consultancy which also tracks super funds, said current trends looked set to deliver a 3 per cent market return by year’s end, in what could prove an “excellent outcome” for fund members after the “disruption and economic damage caused by COVID-19”.

Chant West investment manager Mano Mohankumar said the recent recovery in funds had been “surprisingly sharp” after the shuddering halt of lockdowns imposed in the first half of the year.

“If we look back to the end of March, the world was in chaos. We were facing a frightening health crisis which saw most countries introduce some form of lockdown. Whole industries ground to a halt, countless jobs were lost and the global economy was heading rapidly into recession,” Mr Mohankumar said.

The market has seen a wild year since the coronavirus pandemic struck in January.

After rising to a record high of 7197.2 points by late February as investors initially switched out of Chinese assets when the pandemic took hold in the city of Wuhan, Australia’s S&P/ASX 200 share index dived almost 40 per cent to a 7.5-year low of 4402.5 points in just four weeks as the pandemic went global and the world faced unprecedented shutdowns of economic activity.

 

SuperRatings noted that capital stable options – which skew to bonds and cash – proved far more defensive for investors seeking to weather the pandemic, only falling 1.6 per cent by July.

Compared to that median balanced options were down 5.1 per cent in July.

But the fastest-ever bear markets in US and Australian shares were followed by the fastest ever bull markets, with Australia’s S&P/ASX 200 index bouncing more than 50 per cent as governments and central banks responded with unprecedented fiscal and monetary policy stimulus.

Australia’s federal government moved quickly to introduce a highly-effective income support scheme in the form of its JobKeeper program, later extended from September to March.

The turnaround in the markets marks a break with past trends, with markets tumbling 36 per cent in the wake of the 2008 global financial crisis, followed by a further 12.7 per cent crash in 2009.

The fiscal stimulus in the October federal budget shored up consumer and business confidence in the face of a damaging second-wave of coronavirus and strict lockdowns in Victoria which were subsequently lifted along with many state border closures.

The Reserve Bank started quantitative easing in November with a bigger-than-expected $100bn commonwealth and federal government bond buying program while also cutting interest rate targets including the overnight cash rate and the three-year bond rate target to just 0.1 per cent, providing a major leg of support to asset prices including shares and property.

The development of highly effective COVID vaccines proved much faster than expected with UK and US vaccinations starting in November and Australia giving emergency use authorisation for the AstraZeneca-Oxford vaccine from January.

A narrower-than-expected US presidential election win for Joe Biden helped fuel a surge in the US share market by lessening the chance of tax hikes while potentially still allowing greater US fiscal stimulus, and the US Federal Reserve has retained a bias to do more asset buying if needed.

Damian Graham, the chief investment officer of the $130bn Aware Super, said government support and the interest rate environment would go to driving market movements in 2021.

“When there’s such limited return in defensive assets it’s pushing people into growth assets,” he said.

“We think the market is reasonably priced but an expensive market is not the only requirement to see a correction.”

SuperRatings executive director Kirby Rappell said November had delivered a “watershed” month.

“Given the world is battling a pandemic that has resulted in large sections of the economy being placed in lockdown, the results are remarkable,” he said.

“This is the year super proved its worth once again and reminded us why it is so critical to our economic success.”

Mr Rappell said Australia’s success in containing the pandemic had put the economy in an “enviable position”, but significant risks still haunted the broader market.

“The pandemic is not yet defeated and there are geopolitical issues weighing on the outlook.

“Members should be optimistic but prepare themselves for potential surprises as we head into 2021,” he said.

The Chant West analysis found that despite the wild swings that had hit the market in recent decades super fund holders invested in median growth funds remained well ahead.

It noted that since the introduction of compulsory super in 1992 the median growth fund had delivered a 5.7 per cent real annual return, well above the 3.5 per cent target.

Mr Mohankumar said 2020 demonstrated the need for super fund members to maintain a long-term focus.

“Those who panicked and switched to cash or a more conservative option back in March would not only have crystallised losses, but as markets rebounded so sharply they would have missed out on some or all of the rebound,” he said.

APRA heat maps put performance of super funds under spotlight

The Australian Business Review

16 December 2020

Glenda Korporaal – Associate Editor (Business)

The federal government’s push for more mergers in the superannuation industry and weeding out underperforming funds takes another step forward this week, with the release of the second annual “heat map” on performance by the Australian Prudential Regulation Authority.

Friday’s announcement will focus on the $750bn MySuper sector with the release of the latest heat maps, which will assess more than 80 MySuper funds by their investment performance, fees and “sustainability” for the financial year to the end of June.

This week will be the second year in which APRA has released the so-called heat maps (which colour-code funds in terms of how good or bad they have ranked) in the three areas.

More specifically, the maps will cover a fund’s investment performance over three and five years, administration and total fees and a fund’s sustainability, including net cashflow.

There is also speculation that APRA might include other measures of investment performance, possibly to support the proposed eight-year performance metric to be used in the upcoming Your Future, Your Super comparison tool announced in the October budget.

Rice Warner superannuation specialist Steve Freeborn says the new heat map details will reflect funds’ investment performance that includes the first months of COVID-19, when markets suffered a sharp downturn before recovering.

They could also provide insight into whether funds have been able to reduce their fees in the year since the last heat maps.

Rice Warner has observed that a number of funds that were highlighted as having relatively high fees in last year’s heat map have undertaken reviews of fees.

But as they have only implemented them after June 30, changes will not be reflected in the latest heat map results.

A number of other larger funds, Freeborn notes, have continued to promote the benefits of their scale and cut their fees, particularly their MySuper investment fees.

In theory, heat maps are supposed to provide guidance to super fund trustees on how their funds are performing relative to other funds in the market.

Together with member outcome statements that need to be produced by super funds, they are supposed to provide the basis for conversations between APRA and the funds over their relative performance.

But critics argue that the maps provide no accountability for risk.

A fund could achieve good returns in one year, with some risky investments in a rising sharemarket, while other investors may decide to opt for lower performance but ones that make safer investment bets.

Higher returns can be correlated with higher risk (think bitcoin), which is not something that all super fund members wish to bear.

The now annual APRA heat maps are just the start of the super fund battle ground between the industry and regulators of the $2.9 trillion super sector.

The first few months of next year will see if the federal government decides to move to overturn legislation that would result in the compulsory superannuation guarantee levy rising from 9.5 per cent to 10 per cent in July.

The Morrison government has paved the way for an argument against it, on the grounds that it could cost workers wage rises that are better off in their own hands than locked up in super savings.

But there is also a realisation that despite the relief-driven optimism of the closing months of 2020 as Australian borders open up, 2021 is not going to see wage increases for many workers.

The argument now gaining ground, particularly with the union movement, is that it’s better to see a 0.5 per cent guaranteed increase in super contributions than no wage increase at all next year.

While the super levy has stayed steady at 9.5 per cent for the past few years, it has not been accompanied by rising wages.

The Morrison government is not an enthusiast for compulsory super, but the fact that the increase is already legislated could make it hard to stop the rise to 10 per cent in July.

But it could well move later to overturn the subsequent stepped rises to 12 per cent by 2025.

The May budget is also shaping up as another test of the Morrison government’s views on super.

After a drain of almost $40bn in early access to super allowed because of COVID-19, there is a concern that the budget could allow early access to super for deposits for first-home buyers.

But such a move would not do much for housing affordability and risks undermining the concept of super as a compulsory savings system that needs to be preserved until retirement.

Next year will also see more detail on the federal government’s push for more aggressive comparisons of super fund performance.

The government announced a package of changes to super in the October budget designed to improve the efficiency of the sector and provide consumers with more transparency to be able to compare fund performance.

Under the changes outlined in the budget, super funds will need to compare their investment performances against certain announced benchmarks, depending on which sector they invest in. The comparisons will need to be made over an eight-year period.

Funds that underperform their constructed benchmark by more than 50 basis points will need to write to members and tell them of their “underperformance”.

If they underperform for two years in a row they can be blocked by APRA from accepting new members into their default My­Super product.

While the move is aimed at discouraging underperforming super funds, the details have prompted criticism from fund managers, who argue that they will encourage super fund trustees to take safe bets and follow an index rather than take risks with a goal of achieving better performance over the longer term.

The new legislation to bring in these comparisons is still in the consultation phase, but is set to come into force from July 1.

The early access to super and some falls in financial markets have seen the first annual fall in super fund assets this year, after decades of continuous growth.

The latest figures released by APRA show super fund assets of $2.9 trillion at the end of the September 2020 quarter, a 1.6 per cent fall over the year.

The figures show it was the low-budget MySuper sector that has been most affected by early-access withdrawals.

Total assets in MySuper products totalled $754bn at the end of the September 2020 quarter — a 3.3 per cent fall in total assets in this sector over the prior year.

The MySuper heat maps will reflect a volatile investment markets in the six months to the end of June.

The latest APRA figures show super fund investment earnings were positive in the September 2020 quarter, at 1.9 per cent on average for funds, following a 6 per cent increase in the June quarter.

This has helped the recovery from the negative 10.3 per cent average return in the March quarter.

Just how each MySuper fund has performed amid this volatility will be under the spotlight this week, setting the scene for ongoing debates between government, regulators and the industry.

Tax-free superannuation set to expand with new concessions

The Australian

14 December 2020

James Kirby – Wealth Editor

Superannuation tax concessions are about to expand as an unlikely economic rebound is set to trigger an increase in the amounts that can be held in tax-protected super funds.

Investors should soon be able to have $100,000 more in tax free retirement funds – and contribute a combined $12,500 more into their super annually during working years – as long awaited “indexation” kicks into action over the coming months.

The Australian Taxation Office has issued a public update alerting the finance industry to changing consumer prices which are expected to trigger an expansion of the all-important transfer balance cap – the amount that can be transferred to fund a tax free pension.

In the note the ATO has pointed out that if the Consumer Price Index for the December quarter is 116.9 or higher, “the indexation of the general transfer balance cap will occur on 1 July 2021”. With CPI rebounding in recent months, economists expect CPI will rise beyond this number. At Deloitte Australia, the forecast for the December quarter CPI is 117.

Existing superannuation concessions have been criticised in the wider debate over retirement incomes. The recent Retirement Income Review suggested superannuation concessions were costing the tax system close to $42bn annually. Nonetheless, the expanded limits will be widely welcomed by investors.

Just now the total amount that can be transferred on retirement to super underpinning a tax-free retirement is $1.6 million per individual. That number is set to rise to $1.7m for those who “start their first retirement phase income stream on or after indexation”.

Separately, industry professionals have noted that contribution caps – the amount that can be contributed to super on a pre and post-tax basis – will also receive an indexation-based increase thanks to rising average weekly wages.

At present, the amount that an individual can contribute to super is limited to $25,000 on a pre-tax (concessional) basis and $100,000 on a post tax (non concessional) basis. These amounts are set to rise to $27,500 and $110,000 at the same time next July.

An absurd twist

The changes will also unleash confusion by creating new tiers within superannuation where different people at different ages have different caps on how much they can have funding tax free super.

In a twist that only the absurdly complex super system could come up with, industry professionals have been baffled as to why super caps are indexed in relation to different economic numbers: The CPI and Average Weekly Ordinary Time Earnings (AWOTE). Indexing allows the government to change ‘caps’ as inflation moves higher.

Peter Burgess, deputy CEO and director of policy and education at the Self Managed Super Funds Association, believes that on the basis of the most recent figures it is looking like both caps will go up. “When the government created the system many in the industry said it is going to be very confusing when indexation kicks in. Now, it’s fast approaching,” he says.

In July 2017 the Transfer Balance Cap was introduced as a way to tax the wealthiest users of the super system. Once a person has more than $1.6m in super, the earnings on the amount in excess of $1.6m are eligible for tax: Amounts in excess of $1.6m in the super system are generally taxed at the 15 per cent “accumulation” rate.

The higher Transfer Balance Cap of $1.7m will largely apply to new retirees transferring funds to start a pension.

“We thought the changes might happen in 2020 but COVID-19 put a brake on it. Now investors are surprised at the rebound in the economy and I expect many will be surprised to see the caps lifting as well, “ says Lyn Formica, head of SMSF technical at Heffron.

Commonwealth Budget 2020-2021 Superannuation Announcements

On 6 October 2020, Treasurer Josh Frydenberg delivered the Commonwealth 2020-2021 Budget.

For the superannuation announcements please click on the following links:

https://budget.gov.au/2020-21/content/factsheets/download/your_future_your_super_factsheet.pdf

https://treasury.gov.au/sites/default/files/2020-10/p2020-super_0.pdf

https://treasury.gov.au/publication/p2020-super

Superannuation at the crossroads

The Australian Business Review

16 september 2020

Glenda Korporaal

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.

GLENDA KORPORAAL

ASSOCIATE EDITOR (BUSINESS)

Boomer incomes fall as younger generations enjoy benefits surge

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.

Retirees warn of hit to their incomes worth tens of billions of dollars

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.

SMSFs suffer $70bn hit in virus shock

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.

Retirees facing financial as well as health risks in coronavirus pandemic

The Australian

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.

Superannuation drawn into political crossfire in coronavirus crisis

The Australian

19 April 2020

John Durie

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.

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