Contributions dive as super debate spooks members
Contributions dive on superannuation confusion. Photo: Getty
Net contributions to superannuation accounts have dived in the 12 months to September 30 after the Turnbull government’s super reforms first unveiled in the May budget confused and frightened fund members.
The Australian Prudential Regulation Authority’s performance report for the September quarter shows that net contribution flows (contributions less benefit payments) plummeted 30.4 per cent to $5.3 billion for the quarter, compared to $7.6 billion a year earlier.
For the year ending September 2016 net contribution flows also collapsed, to be down 25.39 per cent to $31.7 billion. That compared to $42.49 billion for the previous year.
The big falls were driven by voluntary contribution declines as fund members closed their wallets while debate raged over the superannuation reform program, which finally passed the Senate last week. Personal (after-tax) contributions fell by 16.8 per cent to $19.18 billion for the September year from $23.03 billion a year earlier.
The picture was different where involuntary contributions and long term voluntary commitments were concerned. Employer contributions, which include super guarantee and salary sacrifice payments, rose 2.8 per cent to $82.7 billion.
So marked was the decline in voluntary contributions that it pushed overall super contribution figures down 1.5 per cent to $103.06 billion for the September year from $104.5 billion a year earlier.
Net contributions shrunk.
Another factor in pushing down net contributions was an increase in benefit payments as a greater percentage of members moved into retirement and drew on their savings. Payouts to those living off their super jumped 5.8 per cent to $65.7 billion from $62.09 billion the previous year.
The super industry believes the contribution collapse was a one-off triggered by the political debate and confusion around the government’s super changes on voluntary contributions. Initially, the reform package restricted non-concessional contributions to $500,000 backdated to 2007.
However the plans triggered a political backlash, with Labor calling them retrospective and Coalition MP’s threatening to cross the floor unless they were changed. The final package restricts funds in pension phase to $1.6 million and bars non-concessional contributions once this level was reached.
Alex Joiner, chief economist with IFM Investors, said “net contributions declined because people were not sure what to do. It reflected the uncertainty in the system that lasted so long.”
“Now contribution levels should recover and people will have the confidence to lock money away for a long period to fund their retirements,” Dr Joiner said.
Super returns improved over 2016. Annual industry-wide returns (excluding SMSFs) were 7.4 per cent. The five year average annualised return to September 2016 was 9.1 per cent.
Returns are growing.
Over the September 2016 quarter, total assets for the APRA regulated sector increased by 2.1 per cent (or $29.3 billion) to $1.5 trillion. When SMSFs were factored in, super assets totalled $2.145 trillion.
The growth of the self-managed sector seems to have been pegged back a little by the fall in non-concessional contributions, with total SMSF assets growing 7.9 per cent to $635.9 billion. Industry and public sector fund growth both outstripped this.
Industry fund assets rose 11.3 per cent to $481.7 billion while public sector funds grew at 9.8 per cent to $231.9 billion. Retail funds grew by 6.08 per cent to $558.6 billion.
As at the end of the September 2016 quarter, 49.0 per cent of the $1.4 trillion investments of APRA regulated funds were invested in equities; with 22.9 per cent in Australian listed equities, 21.8 per cent in international listed equities and 4.3 per cent in unlisted equities.
Here’s where the money is.
Fixed income and cash investments accounted for 33.4 per cent of investments; 20.9 per cent in fixed income and 12.5 per cent in cash. Property and infrastructure accounted for 13.5 per cent of investments and 4.0 per cent were invested in other assets, including hedge funds and commodities.
Total assets in MySuper products totalled $492.2 billion at the end of the September 2016 quarter. Over the 12 months from September 2015, there was a 13.6 per cent increase in total assets in MySuper products, and a 23.7 per cent decrease in total assets in accrued default amounts to $39.6 billion.
The New Daily is owned by industry super funds.