Super funds to “freeze” on cash run

Via The Australian:

The government’s surprise move to allow broad-ranging early access to super to Australians of all ages has sparked fears major funds may “freeze” withdrawals in the face of a torrent of applications to the scheme.

Critics of the plan that allows Australians facing financial stress to take out a total of $20,000 in cash from their funds say the plan flies in the face of decades of bipartisan government policy.

Jeff Bresnahan, the chairman of research house SuperRatings, estimates that $20,000 taken out of a 35-year-old’s super account over the next 12 months foregoes around $80,000 in future benefits.

Bresnahan suggests: “If, as a result of unnecessary claiming, some funds are forced to consider freezing withdrawals to protect their remaining members, what will the government do then?”

A statement from Industry Funds Australia – an umbrella grouped for union-linked industry funds – warned funds could face difficulties in honouring a sudden and large volume of withdrawal claims: “The last thing anyone wants is for stressed members to face prolonged delays for access to their super due to administrative bottlenecks,” the statement said.

Industry data has consistently shown that industry funds have a higher concentration of assets outside the sharemarket in unlisted assets, which has been one of the reasons these funds have beaten retail rivals such as AMP and funds from the major banks over the past decade.

However, the extra exposure to unlisted investments – such as infrastructure projects – may also mean industry funds could be among the first to face what is known as “liquidity constraints”, where the fund cannot raise cash fast enough to match claims put through when asset prices are falling rapidly.

If they don’t freeze redemptions then they’ll have to dump their liquid assets. That is, stocks.

That will add pressure to the sharemarket and crystallise losses.

Hoocoodanode?

David Llewellyn-Smith
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Comments

  1. Ronin8317MEMBER

    If the government have a leader with half a brain, they will hand out the money now and take the money from the super fund at a later date. Unfortunately our current leader doesn’t have even half a brain.

  2. ApproachingZero

    “If, as a result of unnecessary claiming, some funds are forced to consider freezing withdrawals to protect their remaining members, what will the government do then?”

    They don’t have a choice. If they won’t give people their money then the government should shut them down.

    This is the underlying problem with superannuation; since very few people actively manage theirs, for 28 years we’ve had 9.5% of payrolls being used to artificially inflate the stock market. Suddenly when people need the money they discover that all those returns they were promised aren’t readily available because, heaven forbid, they drag the market down.

    • Jumping jack flash

      This. Super was used to prop up the market around 2000 or very shortly afterwards. After that time the “growth” super accounts became the default. Before that they were considered a risky option you had to specifically request, otherwise you got a default cash super account.

    • A thing I discovered a few years ago when I was dealing with Super from a deceased estate:

      (sorry this is just a general description, I am not a super fund manager or lawyer)

      Technically the money is not yours. It belongs to the super fund until you withdraw it. Splitting hairs, I guess, but it really is different. What you own is a government mandated requirement for the super fund to pay you an amount equal to the notional balance of your super account, in the manner that the government legislates. Until then, it’s best not to think of it as “yours”. Especially if the government decides to change the rules or give your fund a haircut

      • Diogenes the CynicMEMBER

        Yes which is why a lot of people have a SMSF. Obviously they are expensive to run and have some downsides for those who don’t know about investment but you never face this withdrawal issue period.

  3. Jumping jack flash

    “Jeff Bresnahan, the chairman of research house SuperRatings, estimates that $20,000 taken out of a 35-year-old’s super account over the next 12 months foregoes around $80,000 in future benefits.”

    Lol!

    Only if the market doesn’t crash during that time… Future benefits may be $0 in which case taking out 20K would be the smartest move imaginable.

    Especially if it was leveraged and the necessary amount of debt was obtained to be able to buy a property with it.

    Property will never be allowed to fall significantly. There are over 2 trillion reasons.

  4. happy valleyMEMBER

    “Hoocoodanode?”

    The virtuous circle of the LNP – allow access to super, which means funds have to sell stocks to liquify and all other things being equal, pushes prices down and in turn, the value of the fund? How good is Straya.

  5. ErmingtonPlumbingMEMBER

    Well the alternative is the Govie “prints”/electronicly transfers $20,000 into every adult citizens bank account.
    What overall difference would that really make.

  6. The problem is if you are eligible you can not apply until mid April and you have to go through the mygov web site (the one that keeps crashing). Once you go that far the ATO will approve it and inform your super fund to release the funds (make sure your details with the fund are up to date). how long do you think that will take ?

  7. Does anyone know what the eligibility requirements are for accessing ones super under this scheme and when it can be accessed? I’d love to get 20k out to invest myself rather than trapped in super that probably exist when it comes time to access it.

  8. Know one guy who had been trying to get a few thousand out of his super for financial hardship about 9 months ago. The requirements for doing so are quite onerous and it’s still being “processed”.

    I can’t see the super funds suddenly making it easier as it will rip into their bottom line.

  9. I think a lot of the $20,000 will go in and out. It is free money because you can get it out tax free and then you can recontribute it as a deduction. If you’ve lost your job this year you would take it out and recontribute if you have enough headroom on the annual caps.

    Unless there are anti-avoidance rules around all this.

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