Smaller super funds deny liquidity crisis

Small funds deny they have a problem as the regulator prepares to issue fresh guidance to the $3 trillion sector.

super funds

Smaller superannuation funds have been under pressure to merge in the wake of the financial services royal commission. Three months into the global coronavirus pandemic, that pressure has again ramped up with concerns some may be facing a liquidity crisis as customers either move or withdraw funds.

These funds are denying they have a problem, but the Australian Prudential Regulation Authority (APRA) is expected soon to issue new guidance to the $3 trillion sector.

Panicked savers, particularly older Australians without time on their side to wait out the crisis, have staged a rush on their super funds amid the steepest bear market on record, The Australian reports.

This is forcing fund trustees to ensure savings can be switched out of illiquid holdings in property, infrastructure and private equity investment options into safer assets such as cash.

The Australian Institute of Superannuation Trustees reports that the not-for-profit industry sector would be working with member funds, the government and regulators to tackle “a number of administrative challenges and risks that will need to be overcome and mitigated” for the new income support measures announced by the government on Sunday.

Graeme Russell, chief executive of $6.5 billion fund MediaSuper, told The Australian the fund had already cashed in on some of its put options and spreads – hedged bets against market falls – “to moderate the negative impact from plunging sharemarkets”.

“While the value of the fund’s equities portfolio has obviously fallen significantly, the fund also has significant cash and fixed-interest holdings, and has not experienced any significant increase in member switches to cash or in drawdowns,” Mr Russell said.

“There’s been some, but not significantly increased switching into cash and other defensive investment options.”

Super funds, generally, are warning customers to expect long waits on the phone due to a spike in call volumes.

TWUSuper chief executive Frank Sandy said: “These are volatile times for the superannuation industry.

“So far, we have seen a small increase in our members switching into the Cash Plus option, but nothing extreme. It is worth noting that even during the GFC, movement into cash was muted.”

APRA head of superannuation Helen Rowell was scheduled to outline updated expectations of the sector at a conference in Adelaide last Thursday. The event was cancelled. However, funds have been told to expect an update in the next few days on any change to regulatory programs, how funds should be preparing their portfolios during the pandemic, potential liquidity problems and the impact of the health crisis.

KPMG national wealth management leader Linda Elkins told The Australian it would be some time before the impact of customer switching balances became clear.

“We don’t have any visibility of the level of switching yet,” she said. “But people will likely be looking at drawing down on savings through hardship claims.

“The GFC gave us a blueprint for that. What’s different this time is how quickly things like caterers and event organisers have gone out of business almost immediately. They have no cash flow. People will need to think about accessing super, but that will take some time to play out.”

The Prime Minister’s plan to allow Australians experiencing hardship to cash out up to $20,000 worth of savings over the coming two years has been criticised by Nicki Hutley, partner at Deloitte Access Economics.

Writing for the ABC, she says “a sudden, unplanned increase in fund redemptions when financial markets are already fragile will also likely have the effect of adding further downward pressure on the value of balances”.

She praised the decision to allow reduced drawdowns by retirees — halved from four per cent to two per cent as sensible.

Are you closely following the performance of your super fund? Have you switched funds to a lower risk option?

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    To make a comment, please register or login
    24th Mar 2020
    I am sitting tight, but as the current losses are on 35% and predicted to go even lower I can't help feeling as sick as a parrot.
    24th Mar 2020
    I have not got time for it to pick up swapped to cash
    24th Mar 2020
    That is what we did last time we had a meltdown and I am glad we did.

    24th Mar 2020
    If they are only holding enough cash for normal withdrawals they will be selling anything they can to meet withdrawals.

    24th Mar 2020
    If they are only holding enough cash for normal withdrawals they will be selling anything they can to meet withdrawals.
    24th Mar 2020
    Going cash is not a great idea far too late.First we had the Joe Hockey disaster and now this .Will our P.M. offer any help to self funded retirees on his past performances i would think not.
    24th Mar 2020
    None of the banks pay enough interest on term deposits to make going for cash a useful alternative.
    The PM hasn't helped self funded retirees so far and I'm doubtful if it happens now.
    24th Mar 2020
    If the self funded oldies are not helped by this lot then the other one would have even
    less compassion for them. ALP regards the SFRs as fat cats whereas pensioners are dinkum battlers.
    24th Mar 2020
    I'm also sitting tight but may have to go out and try and get a job when all this is over to recoup some of the losses. At 68 that won't be easy!!!
    24th Mar 2020
    At that age you might just have to learn to live on the age pension like so many of us have to. A job at that age?!
    Chris B T
    24th Mar 2020
    Super funds are not Banks, they have some CASH as required by GOV to met day to day operations.
    This is not Normal, this is a "Dream World Roller Coaster with no one knowing what to do".
    This is going to be a "Wild Ride".
    13th May 2020
    Reduced draw-down are sensible? Only if you have a very large superannuation balance or plenty of other resources. Otherwise how do you live on 2%? Couples with less than $900,000 between them get no pension or concessions. How would they manage on $18000 a year, with no pensioner concessions?

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