Category: Newspaper/Blog Articles/Hansard

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.

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.

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

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.”

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.

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.

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.

The Australian Business Review

18 May 2020

Cliona O’Dowd – Journalist

Super funds paid out $9bn in early release payments in the three weeks to May 10, with just five industry funds bearing the brunt of the pain, shelling out $4.3bn to members battling through the coronavirus crisis, according to data released by the Australian Prudential Regulation Authority.

Funds across the sector received 1.34 million applications for early super access between April 20, when the scheme opened, and May 10, with 1.19 million of those paid out by the same date, the regulator announced on Monday.

Industry funds have been hardest hit by the government scheme, with AustralianSuper already leaping past the $1bn payout, and Hostplus, Sunsuper and REST not far behind.

As at May 10, AustralianSuper had paid out $1.14bn to members. This compares with the $909m Hostplus had forked out and the $932m and $812m paid by Sunsuper and REST. CBUS rounded out the top five, shelling out $474m to members over the three-week period.

Sunsuper was among a handful of funds that paid out all member applications within the five-day time frame, while the other major industry funds paid more than 95 per cent of requests within the APRA-imposed deadline.

While the biggest funds have to date coped with the deluge of withdrawal requests, a number of smaller funds have been slow with their payouts.

Among the worst offenders has been Australian Catholic Superannuation and Retirement, which paid out funds within the five business day time frame just 15 per cent of the time and up to nine business days just 32.6 per cent of the time.

Intrust Super Fund, Retirement Benefits Fund, BT’s Advance Retirement Suite have also been dragging their heels, as has Qantas Super, which has so far paid out funds in the five business days just 51.5 per cent of the time.

Across the industry, the average payment made was $7546. Funds are taking on average 3.3 business days to pay members, while 94 per cent of applications are being paid within the expected five-day time frame, APRA said.

The update from the regulator comes after research house Chant West revealed that super fund performance bounced back in April as sharemarkets around the globe rallied despite the threat of a worldwide recession due to the coronavirus pandemic. It follows a dismal March performance that saw funds suffer their worst monthly returns in close to 30 years.

The median growth fund, which typically is 60 to 80 per cent invested in growth assets, bounced back 3.1 per cent in April, according to the latest date from super research house Chant West.

But the gain wasn’t enough to fully offset the 12 per cent battering funds took in February and March, leaving the return for the ten months of the financial year to date in the red at -3.3 per cent.

“April saw share markets rebound as investors grew more optimistic around coronavirus curves flattening around the world, the expectations of lockdowns easing and economies starting to reopen, partially at least,” Chant West senior investment research manager Mano Mohankumar said.

“While this provided some relief after the pounding markets took in the previous two months, it’s still far too early to tell what the full impact of COVID-19 will be on individual companies, industries and the global economy.

While the median growth fund gained just over 3 per cent in the month, the median balanced option returned 2.3 per cent and high growth returned 3.9 per cent.

Super members should brace for further volatility ahead, Mr Mohankumar warned, as he cautioned against members switching to less risky options without taking financial advice first.

“Unfortunately, super funds have already seen some members hurt themselves by locking in losses in March by switching to a more conservative option perhaps with the intention of switching back later as markets rallied. This is the very thing we caution against,” he said.

“If you take panic action after share markets have already fallen you only convert paper losses into real ones. Not only that, you also risk missing out when markets rebound as they will at some point. Being out of the market during share market volatility, even for a few key days, can make a significant difference to your returns.”

The Australian sharemarket bounced 9 per cent in the month, while international shares were up 10.6 per cent in hedged terms. Factoring in the rise in the Australian dollar over the month, international shares gained 3.6 per cent, unhedged.