Could Australia’s superannuation system be coping with the COVID-19 crisis better than many predicted? That view appears to be supported by new figures from the financial watchdog.
According to the latest quarterly report released by the Australian Prudential Regulation Authority (APRA), while the savings pool did contract 7.7 per cent between December 2019 and March 2020, the sector saw an overall decrease of just 0.3 per cent in the 12 months to 30 April 2020.
This result may be also be attributed to 2019 being one of the best years ever for superannuation savings in Australia.
“Compared to the 23 per cent fall in global stock markets in the first quarter of 2020, as well as the 14 per cent fall over the 12-month period to March, this is a stunning result,” said Alex Dunnin, executive director of research and compliance at Rainmaker Information.
Australia’s superannuation savings have fallen only to March 2019 levels.
The retail super fund sector was hardest hit, contracting by up to 12 per cent in the March quarter. Self-managed super funds (SMSFs) contracted by 9 per cent in the same period.
But the not for profit (NFP) super fund sector comprising corporate, public sector and industry super funds, contracted only 5 per cent
“Two-thirds of the decrease experienced across the superannuation savings pool came from APRA-regulated NFP and retail funds,” Mr Dunnin said.
“While the retail super segment holds roughly one-quarter of superannuation savings assets compared to the NFP segment that holds half, each segment fell by about the same amount in dollar terms.
“APRA figures show the retail super fund segment holds 24 per cent of their investments in Australian equities, compared to just 15 per cent by NFP funds.”
Retail funds are more vulnerable to fluctuations in equities markets. On the other hand, industry super funds with a larger share of their investments in unlisted assets such as real property, infrastructure and private equity are generally better insulated from the worst of these equities falls, Mr Dunnin added.
Super funds held $273 billion in cash at the end of March, alleviating concerns that liquidity levels would be adversely affected by special coronavirus early release claims. About 1.63 million Australians have drawn more than $12 billion from their accounts.
“The 14 per cent held in cash and the 22 per cent held in bonds means super funds have $739 billion or 36 per cent of their total investments held in liquid assets,” Mr Dunnin said.
“NFP funds have 37 per cent of their assets available in cash and bonds, marginally exceeding the 36 per cent held by retail super funds. Industry funds hold 31 per cent of their assets in these instruments.”
For those who have withdrawn money from their super, the ABC has advice on how to take advantage of ‘co-contributions’.
“In layman’s terms, if you make a voluntary deposit into your super, the federal government will also tip some money in as a show of support for low- to middle-income earners.
“In Australia, a low- to middle-income earner is defined as someone who earns less than $54,837 in the 2020–21 financial year.”
So, if you’ve already withdrawn $10,000 from your super (or are planning to take that out), and if you put $1000 back into your account before the end of June, the government will then make a co-contribution to your super account of $500.
Then, if you reduce your weekly budget by $20 per week and contribute the money you save (about $1040 annually) into your super, and if you do that for six years, the federal government continues to make its co-contribution and you’ll have your $10,000 back. However, you will have missed out on compound interest.
Are you surprised by the APRA figures for super?
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