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Nearly 618,000 Australians have applied to get an early release of their superannuation under the Federal Government's plan to help people out of work and facing financial hardship during the coronavirus pandemic.
Key points:
- The ATO has not yet estimated how many people who have registered for early release of their super will be eligible to draw down
- Funds have vowed they will allow members to access their money despite longstanding clauses giving them discretion
- Super funds and experts argue the industry does not have a liquidity problem but there will be higher administration requirements as the funds face a flood of enquiries
From April 20, the Morrison Government is allowing retrenched workers and those suffering financial hardship because of shutdowns to access up to $20,000 in super and take it out tax free.
The first $10,000 is available between mid-April and July 1, and the second $10,000 is available after July 1 for about three months.
The Australian Taxation Office (ATO) said as of midnight April 8, it had 617,800 registrations of interest, but could not yet estimate how many people would be eligible to draw down.
This figure is up from more than 360,000 it reported as of last Friday, and Australians are yet to be able to fill out the official form which allows them to apply from April 20.
To be eligible, people must be either unemployed or eligible for welfare support payments including the JobSeeker payment, Youth Allowance, Parenting Payment, Special Benefit or Farm Household Allowance.
The scheme is also on offer to those who have had their working hours reduced by 20 per cent or more, or sole traders whose business has been suspended or seen turnover fall by at least 20 per cent.
While the Federal Government has estimated that Australians facing hardship will be repaid about $27 billion tax free from their super savings, Rice Warner has estimated the figure could be as high as $50 billion.
The Government has repeatedly warned superannuation funds — which reap more than $30 billion annually in fees in Australia's $3 trillion sector — to act responsibly during this crisis.
Treasurer Josh Frydenberg had said super fund trustees should have managed their legal obligations responsibly over the years to ensure that they have "appropriate liquidity".
He warned that if they do not regulator, the Australian Prudential Regulation Authority (APRA) has a number of levers it can pull, including directing mergers in cases where a fund is unable to meet the needs of members.
Funds vow they will allow members to withdraw
There are longstanding clauses in superannuation fund product disclosure statements — which regularly get updated and have been recently revised for unique reasons unrelated to the government scheme — giving the funds discretion about whether to allow early withdrawals.
The funds say these clauses are not new or exceptional, and that they plan to pay out their members.
But the fine print takes on a new meaning when hundreds of thousands of Australians are now applying for early withdrawals, and it remains to be seen if funds start exercising their discretion more aggressively.
The $44 billion fund representing largely hospitality workers, Hostplus, said in a statement that it recently updated its product disclosure statement.
This was to reflect a clause in Hostplus' trust deed that gives it "a broad discretion to suspend or delay unit pricing in extraordinary situations to ensure equity, fairness and balance in investment pricing and transactions in the best interests of all members".
"In Hostplus' case, this trustee power is not new," the statement said. "It is not unique. It is not exceptional."
Hostplus' chief executive David Elia has publicly defended fund's liquidity position, recently bolstering its cash reserves to $6 billion.
The fund's statement said it remained "committed to supporting the Federal Government's policy to allow members to access up to a total of $20,000 from their superannuation accounts" and that it had "ample liquidity available to support members undergoing financial hardship".
REST, the industry fund representing retail employees and managing about $60 billion in retirement savings, is also expected to see a flood of applications.
It has a longstanding clause that states the trustee has discretion to pay out, but a spokesman said the fund had "extensive liquid assets and is currently well placed to support the early release measures when they become available from April 20".
"We are also stress testing our liquidity position regularly and are currently comfortable with our financial position to handle a variety of early release scenarios," he said.
"The regulations for the new early release measure require us to pay members as soon as practicable after we receive the ATO's determination," the REST spokesman added.
Unisuper the $85 billion fund representing university workers, updated its trust deed this week, but said that had nothing to do with the Government scheme.
"The update reflects the changes that were agreed in 2019 and have no impact to payments for members requesting early access to super," a spokeswoman told ABC News.
"We have no intention to suspend/restrict payments to eligible members requesting early access to super," she added.
"UniSuper has a very conservative approach to liquidity management and we're well positioned to handle the current situation as a result of the pandemic."
Lessons learnt from the GFC
MediaSuper represents those in media and entertainment industry and has more than $6 billion in funds under management.
It told ABC News its clause regarding "absolute discretion" to impose conditions or restrictions on the amount of money members were able to withdraw was "a standard provision" that had been around for years.
"There were no limits or restrictions placed on withdrawals from or investment switches within Media Super during the global financial crisis, and we don't anticipate imposing any limits or restrictions during the current crisis," a spokeswoman said.
"Well-run funds are managed with key risks, including substantial market swings or increased switches or withdrawals, considered and factored into investment portfolio strategies and management."
Your questions on coronavirus answered:
"It is the ATO, not the fund, that determines the eligibility of applicants for early release of their super."
"We will be processing applications as and when approved by the ATO and have more than adequate liquidity to cover the estimated level of applications."
Cbus, the fund representing the construction industry, noted that it had no clause that provided a broad discretionary power to freeze payments, but required members to prove eligibility for withdrawal to protect its members.
A spokesman said the fund had "paid close attention to the lessons of the GFC".
"We have a very robust approach to liquidity and stress testing," the Cbus spokesman said.
"Cbus is in a strong position with liquidity and we believe we are able to pay all member hardship claims, even prior to the recent Jobseeker payment announcement."
Industry has $950 billion in cash and bonds
Alex Dunnin, director of financial services research firm Rainmaker, also argued the industry did not have a liquidity problem and said it was "premature to speculate that some funds will get into trouble".
While it would "have to wait and see how the rule changes impacts particular funds", he said the industry had about $950 billion in cash and bonds — $397 billion cash and $549 billion in bonds.
And should it really run into trouble, the Future Fund was "sitting on the sidelines with $37 billion in cash and bonds".
"We also need to realise that it's not the capital market falls that are the issue because super funds appear to have withstood that onslaught reasonably, all things considered," Mr Dunnin said.
"It's the forced hibernation of particular industries and the Government changing the early release rules which … regulators had no warning of, much less super funds."
"To say funds should have seen this coming is disingenuous."
The industry had a fantastic year in 2019, so the 12-month return was only down 3 per cent despite the recent bushfires and current coronavirus crisis.
"Funds have had a boom 10 years, so they're weathering the storm," he said.
All funds would follow the law, he said, "And if not, you have a regulator with a baseball bat".
What the experts are saying about coronavirus:
The real test for superfunds was whether funds could handle higher administration requirements as they were faced with a flood of enquiries.
And another challenge would be how funds dealt with the change in priorities from long-term investment to short-term cash management.
Super had now become a form of emergency cash management, and some funds were concerned there would be pressure from the Federal Government to change the way super funds operated in the future.
"They've now received a strong message that they must be prepared to play a fundamentally different role in the economy," Mr Dunnin said.
The industry would have to hold more cash and liquid assets, which "could have profound effects on future returns".
"Funds are going to have to build reserves for this type of event," he said.
The big increase in government debt also meant "we might have to rethink the fundamental tax structure of the superannuation tax system".
"Once again young people may get hit just as they're getting started," he said.
"We simply don't know how this will play out."
What you need to know about coronavirus:
Topics: superannuation, business-economics-and-finance, tax, self-employment, work, retail, company-news, covid-19, money-and-monetary-policy, markets, regulation, federal-government, infectious-diseases-other, australia
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