The role of super funds during COVID-19
Access to their super has assisted many Australians during the COVID-19 pandemic. But these savings will also need to underpin the recovery as we navigate out of economic crisis.
With the worst of the pandemic having seemingly passed and fewer Australians needing early access to funds from their super accounts, it is timely to look at the broader implications of superannuation in aiding economic recovery.
The COVID-19 pandemic has presented new challenges across the economy, and the superannuation sector has not escaped the turbulence. Indeed, it can be argued that super is playing a key role in supporting the Australian economy. For Jane Eccleston, Superannuation Senior Executive Leader at the Australian Securities Investment Commission (ASIC), how the industry tackles the ongoing challenges presented by the pandemic has significant repercussions for all Australians.
The regulator initially published its Interim Corporate Plan in July, which set out five organisation-wide priorities to tackle the challenges presented by the COVID-19 pandemic:
- Protecting consumers from harm at a time of heightened vulnerability;
- Maintaining financial system resilience and stability;
- Supporting Australian businesses to respond to the effects of COVID-19;
- Continuing to identify, disrupt and take enforcement action against the most harmful conduct; and
- Continuing to build organisational capacity in challenging times.
But while the early access to superannuation measures and the postponement of a range of regulatory activities supported the public and allowed trustees to focus on responding to COVID-19, ASIC emphasised that trustees’ compliance with their legal obligations cannot take a back seat. In the absence of specific relief, trustee obligations remained unchanged.
“Now more than ever, superannuation trustees have an important role to play in supporting their members by providing balanced, factual and timely information to their members about superannuation issues,” said Eccleston.
With many cautiously hoping the worst of the pandemic is behind us and fewer Australians needing access to their super savings, the role of superannuation funds in aiding economic recovery is more important than ever.
“The benefits of superannuation do not flow only to individual members. Superannuation underpins our economy, investing heavily in productivity-boosting assets that are essential as we navigate out of this economic crisis,” says Glen McCrea, Deputy CEO and Chief Policy Officer at the Australian Financial Security Authority (AFSA).
According to the August 2020 ASFA report The role of the superannuation industry in supporting the Australian economy, the current crisis has shown that the superannuation industry, and the compulsory system in particular, can support people in times of financial hardship. But with the RBA warning that the economy faces a "gradual and uneven" recovery, superannuation savings will also be needed to fund new fixed capital investment that builds the economy’s productive capacity.
“Superannuation funds are a key source of patient capital for a range of asset classes that are crucial for Australia’s long-term productivity performance. These include infrastructure assets, investments in private equity and venture capital enterprises,” says the ASFA report.
Crucially, patient capital is generally not focused on short-term gains, with patient capital investors instead seeking long-term returns and worrying less about adverse conditions in the short term.
“In the absence of superannuation, it is likely that some longer-term investments would need to offer a higher rate of return in order to attract the required funding. Indeed, some projects might not go ahead.”
Overall, approximately 20 per cent of all Australian Prudential Regulation Authority (APRA)-regulated fund assets, or $349 billion, is invested in unlisted equity, unlisted property, infrastructure or other alternate assets. Among MySuper products these categories represent 26 per cent of investments, or approximately $183 billion.
Superannuation funds responded to the large number of initial early release applications by ramping up their administration systems and boosting their cash holdings. This is done through running down holdings of fixed interest assets.
The vast majority of early release payments were made by industry funds, followed by retail, public sector and corporate funds. Data is not yet available for SMSFs, but the number of payments is not likely to be large.
However, those Australians whose financial security is not directly threatened by the pandemic may also be looking for advice on handling their superannuation that goes beyond factual information or general advice. For these people, access to quality personal advice is crucial and having some idea of what their super is funding may help them better understand how their retirement savings and Australia’s economic recovery go hand in hand.
Some examples from the ASFA report include:
- Over half the shareholders of Brisbane Airport are superannuation and other institutional funds. These include Colonial First State, Commonwealth Bank Group Super, MTAA Super, Sunsuper and UniSuper.
- NSW Ports manages a number of major infrastructure assets including Port Botany and Port Kembla. Major investors include AustralianSuper, Cbus, HESTA and Hostplus.
- First State Super has a portfolio of affordable housing units that are rented at a discount to market rent to key workers such as teachers, nurses emergency services and social workers.
- Medical Research and Commercialisation Fund (MRCF) is the largest life-science investment fund in Australia and New Zealand, which is a collaboration between major Australian superannuation funds, Australian and New Zealand governments, and over 50 leading medical research institutes and research hospitals.
- Superannuation fund collaborators include AustralianSuper, HESTA, Hostplus, Statewide Super and TelstraSuper.