SYDNEY, Australia – Senator Andrew Bragg hits out at the investment strategies of superannuation funds, which, according to him, has some imprudent practices.
Senator Bragg accused the reckless investment practices of super funds. He is also questioning the decision of the Australian Government to free up the retirement savings for those who are primarily affected by ongoing COVID-19 pandemic. The Senator is calling the decision as poor risk management.
The Liberal Senator alleges that some superannuation funds are becoming too dependent on illiquid assets, including property and infrastructure
The Senator’s criticisms over the investment strategies of super funds, however, are disputed by leaders in the superannuation industry.
Steve Bracks, the chairman of Cbus, warned that retirement savings with longer terms, as well as the stock market, could experience massive impacts if shares were sold during a severe downturn in the market to appease the demands for the funds.
With the coronavirus pandemic, more people are losing their jobs and income. However, with the recent decision from the Government, they can now apply to get access to their super fund accounts in two $10,000 tranches tax-free started in the middle of April.
And while this can provide the much-needed relief for a lot of Australian households during this crisis, it has also sparked a more extensive discussion and the purpose of super funds in aiding the people during financial hardship.
Based on the estimates from the Treasury, the scheme will take out around $27 billion or 1% of the entire superannuation asset collection, which is worth around $3 billion. Further, the figure released by the Prudential regulator also shows that there is around $184 billion worth of cash across the entire super fund system. The regulator also indicates that for the MySuper default sector, there is about $45 billion in cash.
Meanwhile, industry experts are saying that super funds are looking to preserve a cash barrier and are becoming alarmed that the Government’s offered early access to the accounts could spark a massive sell-off in the share market.
Senator Bragg stated in an interview that the existing regulations are requiring superannuation funds to have enough liquid assets to endure the massive downturn in the stock market. He also criticized the super funds for its over-extension towards illiquid resources like property and infrastructure.
The Liberal Senator also commented that super fund members should be asking the most prominent questions right now to the trustee board and management team of their super accounts. He cited that there will likely be poor investment performance with the current market conditions, as it requires super funds to sell its assets at a much lower price.
Senator Bragg noted that the effects of the ongoing health crisis and pandemic are surprising and severe, not only for the economy of the country but for the global economy as well. But he also said that despite the current economic standing, it shouldn’t cover the imprudent practices of most super funds.
Meanwhile, Steve Bracks, the former Victorian Premier, hits out on the Australian Government. He said that the Government failed to check with superannuation funds before the emergency regulation that it decided to provide early access to the retirement savings.
He criticized the Government, which, according to him, lacks the necessary engagement with the super industry. Mr Bracks also dismissed the recent decision for early access on super for the public as underestimated and rushed.
He said that the scheme might be worth twice the estimates that the Government reported.
Mr Bracks is also asking Australia’s central bank to offer initial financial support for the program. He said that if the Reserve Bank does that, it could significantly prevent massive losses in the market that could affect all super fund members.
The former Victorian Premier acknowledged that Cbus would likely need to get rid of its shares, which, according to him, would create broader implications in the economy.
He stated that he doesn’t think that it would be suitable for the share market, and with what is happening right now, it is enough proof of his sentiments. It is also becoming a disadvantage for a vast number of Australians who are investing most of their money towards their retirement savings accounts.
Tim Jenkins, the Convenor of the Superannuation Practice Committee at the Actuaries Institute, stated that the significant sell-off in shares could drive the company values even lower than it is right now. He said that the demand could increase what the Government forecasted as the stock market continues to stumble because of extreme volatility. Mr Jenkins added that the streamlined nature of the approval process of the scheme doesn’t help either, even adding to the possible increase in demands.
The ASX 200 was volatile again this week due to the coronavirus pandemic. On Friday, the index dropped 5.3% despite rising around 12.5% in the middle of the week. Although it increased by 0.5% compared to the market close the previous week, the figures are still far from acceptable.
The number of companies trying to go public and listed on the Securities Exchange has also declined due to the health crisis. The listing section and the forthcoming floats of the ASX only had seven companies listed on it, with only three of them with planned listing dates.
Mr Jenkins further said that the scheme approvals are straightforward right now. All a person needs to claim early access of his or her super account is to go to MyGov and indicate that their employment or source of income went down by 20% or more.
Alex Dunnin, the director of research at Rainmakers, also commented on the issue. He said that there was never an intention for the superannuation to fund the scheme that the Government legislated the previous week. Super funds, according to Mr Dunnin, were built with a particular purpose and is also required by the law for long-term investments. He added that superannuation funds are not for releases of cash in the short term like what the Government passed last week when it allowed the early access to the people’s retirement savings.