Category: Newspaper/Blog Articles/Hansard

Political rivals gear up for a super stoush

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.

Superannuation must be built on reality, not stereotypes

The Australian

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.

Super increase in doubt as Scott Morrison fears hit to jobs

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”.

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.

SMSF cost estimates ‘stale’, says ASIC as it starts review

The Australian Business Review

15 July 2020

James Kirby – Wealth Editor

The market regulator is set to dump highly controversial estimates that suggested self-managed super funds cost more than $13,000 a year to run and need 100 hours annually to manage.

ASIC chair James Shipton told a Senate committee on Wednesday the estimates were “stale” and the regulator was now actively reviewing the figures that have caused consternation across the SMSF industry.

The controversial claims first surfaced in an ASIC Fact Sheet last year designed to inform investors if SMSFs were suitable to their needs.

ASIC commissioner Danielle Press said the Fact Sheet was no longer being distributed by the regulator. The numbers, which are at least three times higher than many in the industry estimate, are still on display at ASIC’s Moneysmart website.

The move to review the figures comes after the ATO, which is the specific regulator for SMSFs, recently published statistics showing the operational expenses in SMSFs were at a median of $3923.

Aaron Dunn of Smarter SMSF has called the ASCI figures “grossly incorrect”.

Dunn suggests operating expenses for the vast majority of SMSFs are less than 1 per cent of total assets.

Ron Lesh, managing director of SMSF software administration provider BGL, branded ASIC’s estimate of $13,900 to run a fund and 100 hours to manage as “a manipulation of data”. Lesh told The Australian the number of hours it would take per year to run a fund was about 30.

The ASIC executives were responding to questions put forward by Jason Falinski, the Liberal member for Mackellar, NSW at a parliamentary joint committee on Corporations and Financial Services.

Though ASIC has been praised for efforts to protect consumers, especially in the area of property development where “off the plan” projects can prey on inexperienced retiree investors, the regulator has regularly sparked antagonism in the SMSF sector, which has more than a million members.

The true cost of running a DIY fund remains a contentious issue as bigger industry and retail funds continue to protect their industries from leakage to independent superannuation. But SMSF commencements have recently enjoyed a rebound.

Industry analysts suggest the ASIC figures were high because it used averages, which meant the complete outliers such as super funds that had tens of millions of dollars under management were included — the median funds under management for SMSFs in Australia is closer to $700,000.

ASIC’s high estimates would also appear to include costs such as insurance and financial advice, which are associated with running an investment portfolio but not in running an SMSF, which is simply a tax vehicle for private superannuation.

The regulator continues to state in its documentation that “on average, an SMSF will not perform as well as a professionally managed super fund” — a claim hotly debated among SMSF operators who explain it is impossible to determine generic figures for performance from the highly disparate population of SMSFs in the sector.

The regulator also tells investors inquiring about setting up funds “the returns you can expect from your disparate SMSF are determined by your balance”.

If your balance is more than $500,000, it is possible you might get returns that are competitive with APRA-regulated funds.

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.

Superannuation sapped of $13.5bn, APRA reports

The Australian Business Review

9 June 2020

Gerard Cockburn – Business Reporter

Billions of dollars continue to be leached from Australian super funds as early withdrawal requests near two million.

The latest figures released by the Australian Prudential Regulation Authority show $13.5bn has been drained from the country’s near $3 trillion retirement pool, by members requesting hardship payments due to COVID-19.

As at May 31, 1.96 million Australians had lodged withdrawals requests with the Australian Taxation Office, for an average payment of $7473.


The regulator’s weekly statistics highlight that the scheme has still been paying out more than $1bn per week, following the initial $8bn rush to access funds in its first week of operation.

In the week ending May 31, $1.3bn was paid out to account holders, while the previous week had $1.6bn withdrawn. The week ending May 17, also experienced a $1.6bn.

The early release of super scheme was implemented by the federal government in April, as a support measure to assist Australians who have been affected by the economic downturn induced by the pandemic.

People that have become unemployed or experienced a reduction in working hours are able to access up to $10,000 this current financial year and the 2021 financial year.

Liberal Senator Jane Hume said the estimated total payment figure from the ATO stands at $16bn.

“The early release of super is projected in total to be only around 1 per cent of Australian superannuation assets,” Ms Hume said.

“While it’s confronting to see so many Australians in hardship, it’s been pleasing to see the money flowing to people who really need it.”

Ms Hume noted if the scheme was not implemented, people facing financial hardship would be forced into more expensive forms of financing such as credit card or personal loan debt.

Data from APRA showed 95 per cent of claims were being paid within five business days, while the median processing time is 3.3 days.

APRA said it is contacting funds which are not paying members in the recommended five business days turnaround period.

Members of major industry funds continue to make up the bulk of withdrawal requests, as a large proportion of members are employed in sectors that were significantly impacted during the shutdown.

AustralianSuper, Hostplus, Sunsuper, Rest and Cbus constitute $6.5bn of the total funds paid out to members.

AustralianSuper has paid out $1.8bn to 240,455 members, the largest of any fund. The average request from an AustralianSuper account holder is $7,473.

Sunsuper has received 206,899 withdrawal requests, already handing out $1.4bn to approximately 195,000 members.

Hospitality and event focused fund Hostplus dished out $1.3bn to more than 180,000 members, as at May 31.

Approximately 3 per cent of funds under management have been withdrawn from Hostplus.

$1.2bn has been paid out by retail workers industry fund Rest, while $764m has been sapped from Cbus.

Rest chief executive Vicki Doyle said the major fund is “well placed” to cope with the large outflow of funds, but noted ongoing uncertainty caused by COVID-19 will impact its long term investment capabilities.

“It’s important that a short term approach to the current crisis does not create a longer term crisis for Australia’s retirement savings,” Ms Doyle said.

“If members’ super is regularly called upon to provide short-term fiscal support to the economy, it changes the way we invest on behalf of our members.”

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.

Early release regime cracks open the superannuation system

The Australian Business Review

22 May 2020

James Kirby – Wealth Editor

The controversial decision to allow early access to superannuation has lit a fuse. Suddenly everything is on the table. Is the system actually successful? Would investors be better off putting their money elsewhere?

It has also opened doors that were previously shut for the government. Having broken the taboo of “upsetting the super system”, more changes will come. As actuary Michael Rice puts it: “We now have a huge debt and the government will be looking to pay it off, so superannuation will not be as sacred as it was in the past.”

In effect, the super system has been cracked open — a target for everyone on the left and right of public policy but perhaps most squarely in the sights of the Australian Taxation Office.

With $15bn already flowing out of super, there has been consternation around younger people taking out everything they have saved — roughly 100,000 have drained their accounts.

Under the terms of the scheme, anyone of any age can take out a total of $20,000 over the next two financial years.

But perhaps the unexpected dimension of this story so far is the realisation that so few people understand that super is their own money kept locked away in a tax-protected environment until retirement.

In recent weeks I have been running a free Q&A Facebook webcast and it’s alarming that so many people know so little about how the system works. Despite a quarter of a century of mandatory contributions, ­people who are well versed in property or share investing still don’t realise that super is not an investment choice but a tax framework in which you can make investment choices.

There are highly resilient myths about self-managed super funds: speculation that people “need their super” to access property developments or at worst that they can somehow have a new home through super. (In general, you don’t “need” super for property, you need access to capital. You can’t use your super for your home — the family home is already a tax shelter being exempt as a primary residence from capital gains tax.)

But the questions around early super release schemes are the most intriguing, largely because the subject is brand new.

One recurring question is: “Can you take the money out of super and buy your first home?” The answer here is yes — there are no rules on what you do with the funds. That’s why there have been reports of people using newly released super money for online gambling.

In principle I’ve been against the early release of super because younger people will pay a huge price in the long run for missing out on the compounding effect of investing over their working life.

But now that the early release proposal has become reality, there have been situations where I am forced to consider the issue more deeply.

Until this crisis broke, the biggest issue for younger people is not so much paying mortgages (where interest rates are at historic lows) but getting the deposit for homes.

In some cases a person may well be better off getting $20,000 to complete a deposit on their first home rather than having that money in super. There are benefits in home ownership that spread far wider than we can immediately calculate just as there are some super funds that perform less successfully than others.

Dilemmas in the super system are rarely simple to solve. No wonder policy specialists are now scouring the system for more potential opportunities.

At Pitcher Partners, Brad Twentyman has promoted a proposal that the 9.5 per cent super guarantee contribution could be cut in half during these difficult times so that all workers have more money to spend.

If this proposal was successful while the early release scheme is running, we would have money literally draining out of the front and back end of the super system: is that the best way forward? The debate on these issues will intensify ahead of the release of the Retirement Income Review in July.

Before the government trawls the system for new tax revenue it urgently needs two changes. First, we need a huge improvement in education around the system — it should be taught in schools and in every workplace.

Second, the system needs incentives. There is a black spot for super savings between $400,000 and $700,000 — on a week to week income basis many people in this zone may be better off on a full government pension. This is the biggest failing in the system, it has to be re-engineered.

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.

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