SuperRatings has called for a reshaping the current proposal for early release of super to those in financial stress, which currently would allow individuals to withdraw $10,000 before July and a further $10,000 in the next financial year, tax-free.
The researcher is concerned the eligibility criteria is open to virtually anyone on a self-assessment basis to make a claim with the potential for rorting the system being significant.
SuperRatings also expressed fear that as a result of unnecessary claims, some funds will be forced to freeze withdrawals to protect remaining members.
“This is not new. Every financial crisis has resulted in a small number of investment funds being frozen, although this might be a first for super funds,” the researcher said in its analysis.
It has calculated, based on ASIC’s MoneySmart calculator using a growth option with an assumed investment return of 5 per cent before fees and taxes on earnings, $20,000 out of a 35-year-old’s account over the next 12 months will forego around $80,000 in future benefits.
Jeff Bresnahan, chairman of SuperRatings has said “there must be a better way”, noting nearly all of the scheme’s problems will arise because its eligibility criteria is too generous.
“This shotgun approach has the potential to come back and bite the government, hard,” Mr Bresnahan said.
“The focus absolutely needs to be on those who truly do need access to cash, and fast. Quite simply, those displaced from their jobs due to this horrific COVID-19 virus. In reality, those in hardship. This shouldn’t be a self-assessment process for all Australians.
“The government has less than three weeks to tweak what is a valid and morally sound strategy to protect, as best they can, the financial stability of those who have been displaced due to COVID-19 consequences. The idea is sound – the execution not the greatest.”
SuperRatings has proposed three options to improve the early raid measure:
- Allow funds to take a loan out from the RBA to meet all claims, which would be secured against members’ benefits and repayable after a period such as five years. Members would supposedly then be able to recoup lost investment earnings, while the government is protected, individuals get emergency funding and the funds don’t have to sell assets into a declining market.
- A variation on the first option, but with the ATO handling all claims, making all payments and retaining the loan register. SuperRatings said this is a cleaner payment portal and protects the government, member and fund.
- Protect funds against having to sell into declining markets by ensuring that payments are only made to those in genuine hardship (which SuperRatings has defined as having registered as unemployed or being stood down and remain so after four weeks).
“By winding back the eligibility criteria, the level of claims will be lower and hence more manageable. This in turn creates more flexibility for the government on how to best work with the funds to ensure those in need receive assistance as quickly as possible,” SuperRatings stated.
“Opening the floodgates to allow virtually anyone and everyone to drag up to $20,000 out of their super fund, with the current market volatility, is not the answer. All this after bipartisan governments have spent over 27 years – and half a working lifetime – getting Australians’ retirement savings into shape.”
In 2015, APRA undertook a review of the superannuation industry’s approach to conducting stress tests on liquidity. And their conclusion?
Liquidity stress testing should not be viewed as primarily a compliance exercise; rather such testing should be tailored to reflect the particular features and circumstances of the trustee’s operations and used to enhance investment decision making.
This is critical in light of broader factors impacting the superannuation industry, including demographic and net cash flow trends, which will increasingly require trustees to devote even greater attention to sound liquidity management.
And in other news…..
https://www.afr.com/chanticleer/apra-to-target-liquidity-issues-with-super-20200326-p54e2h
I’m sure ASIC and the ISN’s will coerce the government to increase the “Financial Sector Levy” and make us all pay for this over the next 20 years then increase our compliance, blame us IFA’s and the banks for the mass redemptions then increase our compliance and throw in some adviser bannings along the way.
This has nothing, really, nothing to do with the fact that most industry funds actually don’t have the cash to return to members, not sure what I mean, refer to Hostplus no cash holdings since 2011. Now they want the ATO to pay it and they will pay it back at later
Unlike Unisuper who claim to be very cashed up and having no problems buying the shares that the members are selling to go to cash.
As John Pearce said
“Another way of looking at it—we’re effectively using our cash to buy the shares that members are selling. The strength of our liquidity position is such that we plan to continue the strategy for the foreseeable future.”
The debate regarding financial hardship and access to super is already dry cement.
A more important debate is corporate governance and the investment choices the trustees have made on behalf of their members.
If withdrawals have factored to a portfolio’s liquidity… this is the doing of the trustee’s management of the members money. Not a access to super argument due to financial hardship.
True to label balanced investment funds by their label are a mix of all asset classes including cash.
Have the trustees of the miss lead their members and their corporate/investment committee governance caused members increased losses and to what they were made to believe?
If so what are the legal ramifications and compensation members could expect? Class action?
Like the oh so many balanced funds that are some how 70% growth ?
Never could fathom how 70% growth came to be known as Balanced (to my tiny mind = 50%!)
And the minds of most consumers. The vast majority of them think balanced means 50%.
One union fund is 94% growth.
Bailout of the industry funds in other words?
100% correct !