The government’s attempts to politicise liquidity in the superannuation system risked turning Australia’s $3 trillion long-term savings scheme into a short-term cash box, warned Frontier Advisors chief executive Andrew Polson.

“The critical lesson from the fallout from the coronavirus crisis must be to take politics out of super,” he said in an interview with Investment Magazine, before adding that the industry’s liquidity issue was just “a furphy.” The asset consultant said the real issue for Canberra’s strategic work on superannuation was that it is missed a “core purpose.”

Polson said most funds were holding more than enough liquidity to cope with foreseeable stress events, but he conceded that the government’s move to shut down the economy and provide emergency access of up to $20,000 of a member’s super early had disproportionately impacted some funds.

Hostplus and Rest, whose members are in the hospitality and retail sectors, have been hit particularly hard by the coronavirus crisis. Both superannuation funds held more than 40 per cent of illiquid assets in their balanced option before the market rout.

“When the federal government chooses to open up a long-term investment vehicle for members to access cash at exactly the time that markets have corrected, it demonstrates a lack of clarity in relation to the purpose of the system and a lack of understanding of the damage that withdrawing investments in the midst of such a correction can do to the long-term retirement outcomes,” he said. “If the core purpose is clear then people’s attitudes will change and people will be loath to treat super like a cash box or bank account.”

Polson made his comments before an expected surge in member redemptions after more than 800,000 members registered their interest with the Australian Tax Office to withdraw up to $10,000 of their super this financial year under the government’s new early-provision rules. The ATO is due to send the successful claims to the relevant superannuation funds from today who are then expected to transfer the money into member’s individual bank accounts within a week.

“This additional liquidity drain is a government-imposed problem,” he said. “It’s not a market-imposed problem nor a member-imposed problem. And it has been compounded by higher than usual amounts of switching to more conservative options in light of the significant market corrections we have seen. ”

Forced trading

Polson said the global shuttering of economies meant that unlisted investments globally were more difficult to value and trade. He added that while “there was no question” that these investments were appropriate long-term assets for long-term portfolios, the forced trading of these types of investments at times like this was problematic.

“Government expecting the superannuation system to simply turn these long-term investments into cash in times of market stress and unprecedented government-imposed restrictions was not anticipated and should not be politicised.

“This is a self-imposed problem that the system and its regulators need to work through in an orderly way to ensure that trust in the system is maintained.

“The choice our government has made and politicisation of the challenges funds now face highlights the problem that the superannuation system lacks an agreed purpose.”

The Frontier chief noted that most balanced funds had around 70 per cent of their investments in long-term assets, be they listed or unlisted.

“There is a very good reason for this strategy,” he said. “When the government chooses to temporarily allow members to monetise part of these investments there are sound arguments for government to work with funds to ensure that long-term investments don’t have to be monetised at exactly the wrong time be they listed or unlisted.