Official super numbers show why Aussie system is ‘envy of the world’

Australia’s superannuation watchdog has put out the official numbers for super fund performance in the most recent quarter – and the figures show the remarkable recovery the sector managed after the worst of Covid-19.

The Australian Prudential Regulation Authority (Apra) said that the industry-wide rate of return for the April-June quarter was 6 per cent for funds with more than four members. This was a comeback from the negative 10.3 per cent return sustained in the January-March quarter.

The assets held in super funds totalled $2.9 trillion end of the June quarter, which was 0.6 per cent down on a year earlier. This was partly due to a spike in early release payments made to Australians who applied to access their super under emergency rules instituted as a result of Covid-19.

But the 6 per cent return made in the June quarter represented $100 million in investment returns, which the Association of Superannuation Funds of Australia (Asfa) cheered as confirmation that Australia’s super system was the envy of the world.

Superannuation superiority

Asfa CEO Dr Martin Fahy argued that saving as a group – as ordinary Australians did via regular super contributions from their salary – gave Aussies the benefits of scale while diversifying their risks, and even allowing their investments to outperform “so-called sophisticated investors”.

“Hard-working Australians can be confident that they are getting a fair go, participating in the economic recovery and that even with modest balances they can access the same opportunities which historically have been reserved for the wealthy,” he said. “Investing as a group allows savings to be pooled and deployed effectively, both for long-term returns to workers and for the economy.”

A report released last week by investment giant Vanguard into the Australian self-managed super fund (SMSF) sector indicated that more Australians may be taking Fahy’s view. The Investment Trends 2020 report found that Covid-19 and the economic uncertainty it had created appeared to have slowed the rate of new SMSF launches. At the same time, the amount of money held in SMSFs – $676 billion – was at a two-year low, the report noted.

Super contributions slow down

Meanwhile, the Apra quarterly update showed that benefit payments increased by nearly 80 per cent in the June quarter from the March quarter, largely as a result of the $10,000 early release rules. Apra also recorded the lowest level of personal contributions to super in a June quarter since 2016, with just $7.8 billion paid in to super balances.

A lower ongoing level of contributions is a prospect that has worried some super observers, who have noted that higher unemployment or greater uncertainty over job security could scupper workers’ chances of replenishing the super funds they drained with early release.

As a result, last week industry super fund bodies called on the government to pay a one-off $5,000 lifeline to low-income earners who withdrew from their retirement savings as a part of the early release scheme.

At the same time, super bodies are lauding the bounce-back the super sector has achieved after the worst of the Covid-19 financial market turbulence and the valuable role super plays in the Australian economy, in an attempt to persuade the federal government to push ahead with the scheduled super guarantee increase.

Super guarantee questioned

The rate of compulsory contribution by employers is legislated to rise from 9.5 per cent to 10 per cent in July 2021, before eventually hitting 12 per cent in 2025.

Employer groups have pushed back on the planned increase amid fears that increased super expenses will make it more difficult for businesses to recover from Covid-19. These concerns have received the backing of some Coalition MPs and even Scott Morrison has appeared to waver in his commitment to the increase in recent days. Speaking in Canberra on Friday, the prime minister said that circumstances had changed since the increase was agreed.

“Covid-19 has occurred, people’s jobs are at risk… [and] that said, it is something the government has to carefully consider,” he said. “I would certainly hope, and I am an optimist, that by May of next year that we are looking at a very different situation.”

Former treasurer Paul Keating, however, has previously scoffed at the suggestion businesses couldn’t afford the increase, with The Guardian reporting from an industry super fund event earlier this month that Keating, who helped architect Australia’s super system, noting that employers had benefitted from workers’ productivity increases since 2013 without handing over any wage increases in return.