23 November 2016
Michael Roddan – Reporter | Melbourne | @michaelroddan
Uncertainty surrounding the government’s superannuation reforms is continuing to dissuade savers from contributing to their retirement savings, at the same time as the $2 trillion industry is suffering signs of a generational shift where retiree drawdowns on their pensions are now outweighing the amount of new contributions.
Data from the Australian Prudential Regulation Authority yesterday showed total contributions into the super system dropped 1.5 per cent over the year to September, a $1.5 billion drop year-on-year.
A near 5 per cent drop during the three months to September added to the 11.3 per cent contributions fall suffered by the sector in the June quarter, as the proposed super shake-up met with a “triple-whammy” of market-moving votes — Brexit, the Australian election and US election — to frighten savers on to the sidelines.
The fall comes as the government’s super reforms are set for debate in the Senate, where Labor has flagged its intention to seek amendments to the bill, after the package passed the House of Representatives last night.
Opposition treasury spokesman Chris Bowen said the reform package was “better than nothing” and said Labor would support its passage through the Senate if its amendments were not successful. “What we will do … is make sensible suggestions about how it can be improved,” Mr Bowen told parliament.
The reforms, unveiled at the May budget and which were the source of heated debate during the federal election, will limit non-concessional super contributions to $100,000 a year and introduce a $1.6 million cap on tax-free pension accounts.
While there was an absolute increase of 7.4 per cent in super assets to $2.1 trillion over the year, the APRA figures also revealed a dramatic slide in net contribution flows, which slumped nearly 20 per cent.
The wealth management industry is set for a rough ride over the coming decade as fund inflows wane, with super managers staring at a generational shift where baby-boomers start to draw down on savings. Supported by compulsory contributions from employers, the funds management industry has recorded enormous growth over the past 20 years, but shifting demographics will soon start to threaten the rivers of gold.
Jeremy Cooper, architect of a recent government review into the super sector, said the industry was expecting to move into the net drawdown phase in the 2030s, but those estimates would have to be revised if the 18.7 per cent slide in net contributions this year established a trend.
“More people were taking money out of the system than they were the previous year, by quite a bit,” Mr Cooper told The Australian.
“It may be explicable by some one-off thing, but it’s still quite a big jump.
“The proportion of people entering retirement is steadily increasing, but you wouldn’t have expected it to jump that big.”
About 700 Australians retire every day and the retiring population will grow at an average rate of 2.5 per cent for the next 10 years.
Chris Kelaher, chief executive of wealth management group IOOF, which has more than $100bn in funds under management, said the proposition that super contributions were going to taper off into nothing was “just a bit naive”.
“Obviously there’s a point in time in the future where the net flows into the system may vary negatively,” Mr Kelaher said. But he said greater longevity and longer pension phases would help support demand for wealth management.
Mr Kelaher said this year’s dip in personal flows was due to the US and Australian elections and the Brexit vote, but he argued that after the government’s reforms were passed people would ramp up contributions.
“You’ve had a triple whammy this year,” he said.
“You put those … things together and then you’ve had very soggy markets in January and everyone’s sitting on the sidelines and figuring it out.”
Association of Superannuation Funds of Australia chief executive Martin Fahy said the tax changes to superannuation would make the system more equitable and sustainable, and he called on the Senate to pass the reform package. “This legislation should be passed without undue delay to provide the certainty people need to make voluntary contributions to their superannuation,” Mr Fahy said.
The APRA data also showed more people were moving away from large funds and into self-managed super funds, where assets had grown 8 per cent over the year to $636bn.
Elsewhere, research from Morningstar showed the majority of super funds recorded losses in October, with a median return of negative 0.7 per cent. Industry funds were the top performers over the past 12 months, with Cbus returning 6.6 per cent.