It seems that for every problem there’s someone who sees superannuation funds as either its cause, or as available funds to solve it.
Fortunately superannuation funds have not been blamed for the spread of the coronavirus, but I am sure it’s only a matter of time.
One of the many disappointing and distressing things about a crisis is that it tends to lead to stridency of views and reversion to type. We have seen plenty of both. In the current crisis, it would be much better to have civilised and constructive discussions about the best way forward. This has been the focus of the entire ASFA team over recent weeks and more generally, over the years.
Australia ranks around number three in the world in terms of the absolute size of its funded private pension system. It most likely ranks number one in terms of the pool of defined contribution pension assets with the United Kingdom and the USA still having very substantial defined benefit arrangements. One of the strengths of the Australian system is fund members’ attachment to having a specific account balance, rather than having a mere expectation of an eventual income stream. The downside is that the individual savings are seen as more open to be accessed.
Much has been made of the supposed A$3 trillion in superannuation assets and the potential availability of a small proportion of that amount for immediate income needs of fund members, rather than for their retirement needs.
However, the amount attributable and potentially available to Australian workers is much lower than that. For a start, the total amount in assets has come down as the result of the fall in the price of various equities. The total assets as at 31 March are more likely to be around $2.6 trillion. Also, substantial proportions of the aggregate assets are attributable to SMSFs, retirees, defined benefit funds, and balances of those not retired but not active in the labour force.
Most of the early release withdrawals are likely to come from MySuper accounts. As at June 2019 MySuper products had a total of 15.1 million accounts and $720 billion in assets. Both numbers are likely to have come down since then due to small inactive accounts being sent to the ATO (not all of which are to be reunited with active accounts of fund members) and lower equity prices impacting on aggregate (and individual) account balances.
It is unclear how many individuals will apply for early release on the new temporary grounds, but it could be up to 4 million individuals and involve up to $60 billion in assets. These are big numbers.
Whether to take early release or not is a difficult decision for the fund members involved. Even with JobSeeker and JobKeeper payments in play many Australians are doing it tough now and could be doing it even tougher in the months ahead. On the other hand, taking losses now on the value of superannuation balances and compromising eventual retirement super balances is a significant price to pay.
Volatility in investment markets makes it even harder for fund members to make informed decisions. Account balances currently showing when individuals log into their myGov account can be quite different to the 30 June 2019 balances.
These days a week brings about as much movement in prices as you used to get over the course of an entire year. At the time I am writing (1 April) it is down around 27 per cent from the market peak on 20 February 2020 but it is up around 15 per cent from the recent low on 23 March.
Moving forward, the primary challenge for Australia will be to get the pandemic under control and to provide the medical services that Australians require. Superannuation at both the individual and aggregate level will assist Australia in meeting other challenges ahead. It will provide income for those Australians most under pressure and a source of investment funds for businesses seeing out the crisis to recover once the health and medical challenges have been met.