Times are tough for Australians and our world-renowned Medicare system and recent initiatives such as JobSeeker and JobKeeper have been crucial in supporting people when they have needed it most.
However, one of the unheralded contributors to surviving this COVID-19 crisis is universal superannuation. It has done this through not only supporting the incomes of Australians but through investments in Australian businesses.
Universal superannuation has supported people in their retirement for the last 30 years and over the last five months it has helped millions of Australians by providing more than $30 billion (and counting) in early release payments in people’s moment of crisis.
The ability to make these huge payments quickly is a measure of the efficiency and effectiveness of the super industry and the quality of the architecture that underpins it.
Superannuation has also decreased Australia’s reliance on foreign investment as superannuation funds have invested heavily in assets that have lifted and will continue to lift productivity and support employment.
This mitigates some of the need for foreign investment and also complements it, as superannuation is about diversification of risk for both an individual and the economy.
As an investor, superannuation is in it for the long haul, not looking to make a quick buck at someone else’s expense.
APRA regulated superannuation funds have around $2 trillion dollars invested as at June 2020. Around 60 per cent of that is invested domestically, including:
- $150 billion in Australian listed shares
- $71 billion in property (including offices, shopping centres and factories supporting the employment of Australian workers) and $58 billion in infrastructure
- $2 billion committed to venture capital and $6 billion to later stage private equity according to ABS data.
Superannuation funds have also made a substantial contribution to the capital raisings of Australian companies as they respond to the challenges flowing from the economic impact of the COVID-19 pandemic.
With superannuation providing an ongoing pool of capital to the economy, Australia’s payments to foreign investors are much lower than they would otherwise be. This is one of the key factors why our current account recently went into surplus for the first time in 30 years. Australia is also now better protected against the impact of capital flows from overseas freezing during times of economic and financial instability.
Calls by people to dismantle superannuation risk not only shrinking people’s retirement but also shrinking the economy.
On that theme, it is worth noting an unintended impact on investment from the Government’s early release scheme is that funds have needed more liquidity to meet the demand for early release. This has meant holding more cash (which has an effective return of zero) rather than investing that money productively and receiving not only higher returns for superannuation members but driving economic growth.
While super is providing significant capital to the economy and helping Australians who are doing it tough, we cannot forget that the key objective of super is retirement.
The gradual increase in the Superannuation Guarantee from 9.5 per cent to 12 per cent of wages (scheduled to start on 1 July 2021) will be crucial.
We can keep Australia as a great place to live, work and retire but not by continuing to undermine confidence by tinkering with the superannuation system.
Leave super alone so it can provide a dignified retirement to Australians and continue to grow the economy.
