Superannuation funds can add ‘liquidity management’ to the balls they urgently need to juggle as this financial crisis unfolds, following the government’s announcement on Sunday it will allow temporary early access to super for some members and a reduction of minimum draw-down rates for retirees.
Amid plummeting and volatile financial markets across asset classes, sparked by recession fears on the back of escalating concerns relating to the spread of COVID-19, super funds will be called on to make sure they have cash reserves to satisfy unplanned draw-downs on some balances.
These temporary rule changes to superannuation – part of the Morrison government’s latest $66 billion stimulus package announced at the weekend – may not necessarily be a precursor to further changes to super rules with stimulus benefits, such as making super guarantee contribution voluntary, head of retirement solutions at Willis Towers Watson, Nick Callil, said.
“There are still people making a case for Superannuation Guarantee contributions of 9.5 per cent of wages be made voluntary for a period, providing an income increase of around 10 per cent for those who remain employed,” Callil noted.
“With things moving so fast it’s hard to read too much into the government’s stimulus announcement [relating to super] to suggest they may go further [and look to change the SG rules],” Callil told Professional Planner on Sunday.
Callil noted that early access and minimum draw-down changes were on the cards given the severity of the unfolding crisis; he added that the minimum draw-down amnesty was activated during the 2008/09 global financial crisis.
Callil will be participating in a panel discussion along-side Minister Jane Hume, the assistant minister for financial services, superannuation and fin-tech, and Dante De Gori, the FPA’s chief executive, to open Professional Planner & Investment Magazine’s Retirement Conference, which will be live streamed on March 31. Secure your digital access for the conference here.
Treasurer Josh Frydenberg on Sunday announced the government’s plans to allow financially stressed people to access $20,000 of their retirement savings – $10,000 this financial year and a further $10,000 in the next financial year.
Frydenberg said in a statement that the government’s latest measures would release less than 1 per cent of the $3 trillion saved in superannuation, and that the prudential regulator had advised there would be no significant impact to the industry.
Both the Financial Services Council and the Self Managed Superannuation Funds Association supported the government’s super stimulus measures in respective press releases on Sunday afternoon.
The fact the Australian Tax Office, rather than the funds themselves will be administering the applications for early access, means the impact on the funds will be reduced, Callil pointed out.
“The mechanism is important. If the government had announced individuals could apply to the funds directly, that would have presented a whole other set of circumstances,” Callil said.
“The fact it’s the ATO administering it means from a cashflow point of view the impact will likely be staggered… because it’s going through the ATO probably protects the funds from being swamped [with requests] straight away,” he said.
Whether all super funds already have the liquidity they’ll need to satisfy additional draw-down requests or whether some will need to sell assets to free up capital is not clear.
“Acknowledging we are in a world where we are all working on short time frames, my sense is funds still have some time to assess likely impacts [of the government’s latest decisions],” Callil said.