ATO defers its collection of super to let funds keep liquid cash in hand

Super funds should be able to handle withdrawals from stressed members

Super funds should be able to handle withdrawals from stressed members Photo: Getty

The Australian Tax Office has given superannuation funds a six-month reprieve for the transfer of unclaimed super balances to ensure funds have enough cash for members.

The move was made in response to government’s controversial super early access scheme after concerns were raised the program could leave funds short on cash.

The scheme allows members facing economic hardship as a result of the coronavirus to withdraw $20,000 from their super funds over the next six months.

A shortage of cash could potentially create a problem for fund liquidity (the ability to quickly sell assets without hurting their price).

Treasury believes that move would cost $27 billion, or 1 per cent of total super balances. However research group Rice Warner believes it could total $50 billion

Ian Silk, CEO of Australian Super, the country’s largest fund at $170 billion, said the if the withdrawal proved to be at the upper end of estimates it could lead to a need for RBA liquidity support for a few small funds.

“As I see it, this has never happened before, that people have been able to take significant amounts of money out with virtually no notice. Any discussions about a funding facility, I think, have to be seen in that context…” he told the Australian Financial Review.

“We are providing this deferral so funds can focus on assisting their members,” the ATO said in a statement.

The ATO move “will leave the funds with $3 or $4 billion,” said David Knox, an actuary and partner with super group Mercer.

It will help.

Mr Knox said funding potential withdrawals should not overstretch super funds.

“I don’t see it as a major problem. You’re talking about a $2.7 trillion industry so at the government’s estimate it is 1 per cent,” he said.

“Even if it’s a bit more it should be all right as it doesn’t all need to be paid out on the one day. Some funds might be under more pressure due to their membership makeup, but the superannuation guarantee payments [from workers with jobs] will still be coming in.”

Overall super fund members have fared much better than other investment classes with not-for-profit funds being sustained through their unlisted investments.

While AustralianSuper and HostPlus said their unlisted investments had fallen by between 7 and 10 per cent in value, listed assets have fallen far further.

Research from Chant West shows that the Australian share market has fallen 27 per cent and listed property by 39 per cent since the end of January. The average balanced fund is down 12.7 per cent, while Australian Super says its balanced option is down only 6.4 per cent.There has been criticism that some not-for-profit funds have classed unlisted assets as ‘defensive’ in their asset allocations.”Write downs of unlisted assets means funds can expect a lower income stream but the losses have been far less than for shares and listed property,” said Ian Fryer, research chief with Chant West.

“I think its fair to say that they could be classified as 50 per cent defensive because they have fallen far less than listed assets” Mr Fryer said.

Age matters

The falls in fund values need to be looked at differently by different age groups.

“If you are a younger person, say in your 20’s and 30’s, just keep on with your contribution strategy. You are just buying in at lower unit prices, and when prices recover the value of your fund will grow strongly,” said Chris Morcom, a certified financial planner with Hewison Private Wealth.

For retirees

“If you are retired and drawing a pension there are two parts to the issue,” Mr Morcom said.

“If you are in the early years of retirement then super is still a long term strategy because you have years in front of you.”

Retirees should ideally have a year’s cash in their fund to prevent them having to sell at the bottom at times like this.”

“If you don’t have that it is probably too late to switch part of the fund to conservative now. ”

For those without an adequate cash reserve “you should minimise your drawings,” Mr Morcom said.

In a recent crisis measure the government has allowed retirees to halve the minimum mandatory draw down from superannuation in retirement phase.

“That means if you are between 65 and 74 you can reduce your drawdown from 5 per cent to 2.5 per cent,” Mr Morcom said.

“That’s a real opportunity for someone in a position to take advantage of it.”

Take advantage of the lifestyle restrictions to save during the virus crisis, is another piece of advice.

“You can’t travel now, so stay at home and don’t spend as much,” Mr Morcom said.

“This is likely to be a short sharp shock that has hit the economy and investment values. Look at it with a medium- and long-term perspective,” he said.

The New Daily is owned by Industry Super Holdings

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