Oscar Wilde once wrote that “there is only one thing worse than being talked about, and that is not being talked about at all”. Perhaps superannuation as an industry is about to experience a pivot into the former having previously lived through a period of relative societal ambivalence.
Post Hayne regulations have chipped away at the indifference as funds are required to close down duplicate accounts, wrap up unnecessary insurance policies and return monies in eligible rollover funds to their rightful owners. The insinuation was that the mandatory nature of the system had allowed funds to revel in a peculiar complacency whereby they receive consistent inflows without much engagement with their members about their best interests.
All this is about to change in drastic fashion as equity markets sell-off. The old rules around superannuation are about to be revisited with gusto.
In the light of an imminent recession, it seems plausible that the federal government will look to the $3 trillion superannuation industry as a potential source of funds to plug gaps in GDP. Will encouragement be sent to funds to pillage their international investments and redomicile those funds into domestic sources of employment, output and tax? Will chief executives be encouraged to help fund infrastructure projects which could employ some of the thousands of private-sector workers about to lose their jobs? What impact will these imperatives have on the independence of investment chiefs to channel members’ monies into the best possible investment vehicles?
At least that scenario is reasonably collaborative. The recent legislation allowing early access to super balances is a potential landmark decision in the eventual dismantling of the system. Supporters of Treasurer Josh Frydenberg will argue this is a pragmatic solution to support living standards as jobs are lost across the nation. Whilst this argument has logic, it is also possible to take the view that this crosses the Rubicon and undermines the sanctity of the institution. If super is no longer a trust for members to access only when they retire then what exactly is it?
Given that the coronavirus, social distancing and the unwinding of asset prices could be with us for some time, where does this end? Could super balances be accessed as a relief fund for the unemployed in perpetuity? What about the amount? It starts at $10,000 over two years but who is to say that it couldn’t increase in the months and years to come?
It also presents the public with an unusual dilemma. Do they cash in on assets that have seen a dramatic sell-off or do they stay the course? If super can be accessed early, does it even need to be given fresh funds? Perhaps the next stage of policy will be to offer employers the option not to pay super but instead direct those monies towards their staff pay packets. Given that international travel is out of the equation right now, might it be that the nation’s nearest ‘holiday’ will be on superannuation payments?
This would have clear advantages over selling down in the current market and would provide a sugar hit to society in the form of higher incomes and thus consumption. The problem is that it might prove hard to reintroduce the super guarantee, in what would feel like a 9.5 per cent pay cut, once the virus is over.
Ultimately, the superannuation guarantee isn’t yet 30 years old and wouldn’t be as hard to end as we might think. If the public doesn’t care enough and if industry funds aren’t vigilant, this month could mark the beginning of the end of the system. Poor performance of funds, combined with the cash flow needs of an anxious workforce could culminate in a perfect storm that leaves behind a post SG terrain. Perhaps industry funds need to gear up for some clear communication, as it looks like they will be spoken about quite a lot in the months to come.
Colin Tate is the chief executive of Conexus Financial and publisher of Professional Planner.
Thanks Colin – using thought leadership to ignite debate, this is an important matter.
SG needs a massive overhaul to bring it into the 21st century. It is dogged by its industrial relations origins that are a mess by themselves without trying to add super to them. “Only 30-years old” seem old for legislation that is such an important component of remuneration. It has failed to move with the times and, if anything, has increased its complexity. (It is however the cornerstone of the compulsory super system so we need to be careful that the baby is out of the tub when the water is thrown out.)
We are only just on the verge of the baby boomer retirement impact and, even though they were the 1st generation to have any super coverage en masse, they are able to provide us with data on the impact of private retirement funding on the public purse. It is a few generations down from the boomers that will enjoy a full working life of at least 9.5%pa super (remember SG started at 2% and crept up), so it will only be then that the beauty of this system will be fully realised.
So, let’s stop expanding the purpose of super, get FHSS out, consider the appropriateness of the compassionate grounds early release for unemployed individuals (it may remain relevant for terminally ill and the like but allowing super to be used for financial hardship before retirement just moves the financial burden to retirement). Why it was extended to CV-19 I’ll never understand. There is certainly enough alternatives sources available?
Most under 30 yo’s would prefer the 9.5% in cash (less tax) however, the compulsory nature of the system ensures this isn’t an option and even 30 year olds eventually reach 67.