The impacts of the COVID-19 pandemic have been felt widely and deeply across Australia. Super funds have been hit hard, too.
The impacts of the COVID-19 pandemic have been felt widely and deeply across Australia.
Perhaps unexpectedly, it’s also caused rapid shifts in the superannuation industry, as funds grapple with both a reduction in inflows and unprecedented hardship withdrawals through the coronavirus early release scheme.
Super is supporting Australians when it matters
Over 900,000 individuals expressed interest in this scheme before it commenced, and in the first week of operation over half a million applications for release of super savings were received by funds.
Compulsory superannuation savings is money put away for the future, but it’s important not to lose sight of the fact that it remains each individual’s own money, and there are times when it’s more important to have access to that money now.
For that reason, the FSC has always supported the early release of superannuation for people in genuine hardship, and we continue to support that as part of the economic relief response to the COVID-19 pandemic.
While we’ve encouraged people to think about their options before withdrawing their super, and consult resources like ASIC’s MoneySmart website, we know that access to superannuation savings will be a lifeline for many people struggling to make ends meet.
However, we also know that the financial impact of this crisis will leave many people with little or no superannuation, as many people with already low balances access their accounts. It’s also clear that many of those most impacted will be from cohorts who are already disadvantaged and may not be in a position to voluntarily top-up their superannuation accounts. This has a real possibility of impacting retirement outcomes and further entrenching inequality.
As we begin to look towards an economic recovery from the crisis, a mixture of long-term policy responses and genuine member engagement efforts by super funds will be needed to help Australians rebuild their super savings and ensure that we still recognise the value of superannuation as a long-term savings vehicle.
How can we safeguard super?
Trust and confidence in superannuation will be vital to ensure we safeguard the retirement system that has improved retirement for so many.
Unfortunately, some commentators will use this crisis as an opportunity to seek to undermine compulsory superannuation.
We’ve already seen arguments for pausing Superannuation Guarantee (SG) payments or lowering the SG as a policy measure to retain jobs. These changes would have had only a marginal impact on employment but significantly disadvantaged those still in work. There is also a risk that accessing superannuation savings before retirement will become an expectation, rather than a last resort hardship measure.
We know that once you start chipping away at the system like this, it’s difficult to plug the gaps.
The FSC will be working with our members and other stakeholders to ensure that this crisis does not allow the integrity of the system to be compromised.
Looking toward a better super system for all
Of course, major reforms are still needed to ensure superannuation is delivering good retirement outcomes for all Australians.
Unintended duplicate accounts are still being created for Australians by default when they start a new job, with the Productivity Commission estimating that these accounts cost Australians $2.6 billion per year in unnecessary fees.
Policy changes such as the Protecting Your Super package introduced last year have helped reduce the number of unintended duplicates in the system, by sending “zombie” accounts with low balances to the ATO where they are then reunited with an active account wherever possible.
However, we need to stop the creation of duplicate accounts at the source, by ensuring that Australian workers can easily carry a single superannuation account between jobs, just like their Tax File Number or bank account.
Despite both the Productivity Commission and the Royal Commission recommending the shift to a ‘default once’ model in 2019, the Government has yet to act.
Legislation to ensure that every Australian can choose their own superannuation fund, rather than having it dictated by an industrial agreement, is also still before Parliament.
These changes, which would make it easier for all Australians to engage with and manage their own super savings, are vital to creating a superannuation system that is fit for purpose for all Australians – now and into the future.
Jane Macnamara, Senior Policy Manager – Superannuation & Retirement Incomes, at the Financial Services Council.