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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