Why industry superannuation funds are squealing

APRA released its early superannuation release data for the week ended 9 August, which revealed that another $711 million was withdrawn from Australia’s superannuation system, taking the total amount withdrawn early to $31.1 billion:

As shown in the next charts, industry funds comprise the top six super funds for early release, together accounting for more than half of the total funds withdrawn:

According to Money Management, industry funds are facing the loss of tens-of-millions of dollars worth of management fees because of the Morrison Government’s early superannuation release policy:

“If 50% of the applicants were to run their balances to zero and close the accounts, this would see almost 1.5 million fewer accounts. Assuming an average administration fee of $100 a year this equates to a loss of $150 million of fees.”

The analysis noted that additional fees would also be lost to fees charged for funds under management and lucrative fees for life and disability insurance.

Looking at the way in which industry funds had been disproportionately hit, HFS noted that total payments made as a percentage of the total membership benefits (in effect the net assets of the fund), industry funds had paid out 2.9% – ­more than double retail funds at 1.32% and public sector funds at only 0.71%.

No wonder industry funds squealed like stuck pigs when this policy was first announced.

This also helps to explain why industry funds have lobbied so strongly for the compulsory superannuation guarantee to be lifted to 12%, since more funds under management means more fees.

Always follow the money.

Unconventional Economist
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Comments

  1. Wouldn’t it be lovely to see the Gubmint do an about-turn on the compulsory hike in Super. This is being debated heavily in the corridors of power right now and even Phil Lowe has chimed in against the hike. Meanwhile Labor lickspittles continue to bleat and whine – doing their the master’s bidding.

  2. WobbegongMEMBER

    Rather than taking cheap potshots at industry super funds it would be useful if LVO looked at the super withdrawal scheme from a Macrobusiness perspective. I.e add some value.
    As the following article from the SMH points out over 60% of the withdrawals were spent on discretionary items.
    https://www.smh.com.au/business/the-economy/second-stage-of-super-withdrawals-boosts-non-essential-spending-20200816-p55m9i.html
    It also seems that a significant portion was withdrawn by those who may not have qualified. It will be interesting to see how the government addresses that issue. More ROBO invoices perhaps. It also appears that early withdrawal effects Jobseeker allowances. Would be interesting to know whether that aspect was discussed in Cabinet at the time of the Jobseeker changes were made. That is was it a government strategy to limit their total Jobseeker bill by allowing early super withdrawal.
    It is clear that the early withdrawal has carried a major portion of demand stimulus. From the initial work MB had done on the Positive effects of Job keeper transfers on company profits it may well be that early super withdrawal has carried the lions share of the stimulus leaving an as yet undetermined amount of Jobkeeper as a direct transfer from the public purse to corporations. The termination of early withdrawal will no doubt add to the stimulus cliff. It would be good to see some numbers on that.
    There are other questions about this scheme.
    ….There is a moral question of allowing early withdrawal or super savings (which have been accumulated with the benefit of tax concessions) accumulated to provide for retirement.
    …..There is a question of business certainty for Super Funds. As MB would know, an element of asset allocation is set around funds flow. At no point would any fund have contemplated that the government would allow early withdrawal which is totally against the intention and design of the scheme.
    …..If super savings are no longer sacrosanct then why should the Future Fund be sacrosanct. Why was the FF not used for some stimulus.
    Industry Funds fees are a sideshow in this circus.
    Let’s concentrate on the main game MB.

    • Everyone I know who has withdrawn COVID Super has not qualify to do so, but has done it because they don’t trust the super system.

      • What does “don’t trust super” even mean?

        I doubt they have their own investment account.

      • innocent bystander

        some I know who did qualify (20% reduction in hours) have received notices from the ATO effectively stating “don’t you dare recontribute it for a tax deduction”

        • The ATO are sabre rattling. They can’t really stop it being recontributed at some time before 30 June next year.

          • innocent bystander

            that’s what I told them. but some are nervous about being on the ATO radar.
            then again, who told the ATO to rattle sabres eh?

      • Dido Hoody, when Covid hit, initially my work, and income, dove more than 20%, I went to myGov, and withdraw $10K. One day in to this financial year, went for another $10K and got it. Nothing for me would have changed financially if I hadn’t taken it out. But I thought, f-ck ’em, it was all sh!ts and giggles when the Royal Commission called this mob a bunch of shysters, and told them to just stop being so naughty.

        I also thought, if things get real bad, it’s in my hands, for me. Not for some pure cash (super) term deposit to give my 1% minus their fees, or some dumb ar$ed financial investment manager to blow it, and not know when to stop.

        If Prime Minister Scovid allows another withdrawal, I’m applying again.

    • >> ….There is a moral question of allowing early withdrawal or super savings (which have been accumulated with the benefit of tax concessions) accumulated to provide for retirement.
      But does it? Or is the moral question whether super is actually being used for rich boomers to avoid tax instead of actually providing the benefit to accumulate savings to provide for retirement?
      Yes, I get that what you say is what it is SUPPOSED to do.. but every good lie needs a woke and noble cover…

  3. >> ….There is a moral question of allowing early withdrawal or super savings (which have been accumulated with the benefit of tax concessions) accumulated to provide for retirement.
    But does it? Or is the moral question whether super is actually being used for rich boomers to avoid tax instead of actually providing the benefit to accumulate savings to provide for retirement?
    Yes, I get that what you say is what it is SUPPOSED to do.. but every good lie needs a woke and noble cover…