The State of Superannuation FundsAmid the Accelerating Pandemic

  • Mar 25, 2020 AEDT
  • Team Kalkine
The State of Superannuation FundsAmid the Accelerating Pandemic

A superannuation fund (also called super) is a retirement benefit system of placing a certain percentage of your income into a fund and save while you are working to enjoy a regular income during retirement. Your super is then further invested in other assets to help expand your stability to give you the best retirement results.

You can contribute to the super fund if you are working for an organisation or if you are self-employed. There are various types of super funds like self-managed super funds, industry super funds, retail super funds, online super funds, and public sector super funds, among others.

Mounting fears of investors due to COVID-19 pandemic have resulted in a double-digit drop in a superannuation account balance of Australians. According to the Australian Government Department of Health, the virus has infected 2,252 people in the country with eight deaths so far (as at 06:00 AM AEDT on 25 March 2020).

Super funds started the year 2020 with an impressive return of 1.9% in January 2020 on the back of stable share market and a strong performance from bonds. Also, the depreciating dollar played its part in favourable performance of super funds. However, the emergence of COVID-19 during the same month has had a substantial effect on the financial markets and assets. 

The Australian stock market (ASX) has tumbled and fallen by a third since its record high on 20 February 2020. Wealth levels have fallen at their fastest pace, and it is going to take a long period for the savings of Australians to revive. The country’s biggest trading partner China is in the midst of an economic slowdown resulting in a halt in the businesses from mining companies to airlines making investors reluctant to invest money.

The retirement savings are also tied to the share market.

 

 

Experts advise on super for different age cohorts

SuperRatings CEO stated, “For the majority of the population, approximately 50% of their super is exposed to equities. However, for people closer to retirement generally go for safer and conservative options implying only about 20-30% equity investment in their super”. 

For the younger generation, the CEO advised to remain calm and do away with the urge to check your super balance time and again. So, coronavirus is putting pressure on the super.

The situation is particularly stressful for the older cohort above the age of 60 who need superannuation to pay their mortgages and augment their pension.

 

 

Mr Bryant added that people should not try and keep their portfolio in balance at all times.

Workers missing out on superannuation

The Australia employers, according to the law, have to pay superannuation to workers whose monthly earnings are more than $450. There is a rising number of workers who are called as ‘independent contractors and not employees’ and are not eligible for compulsory employer-funded superannuation. They miss out on superannuation and fail to secure a decent retirement.

A new generation is entering the gig economy with looming uncertainty on their finances in the future. Applications like Uber and Deliveroo is giving rise to a cohort that falls outside the compulsory system of superannuation.

Superannuation Guarantee is a mandatory system introduced in 1992 to provide superannuation support to the employees of Australia, which is paid for by employers. This scheme is aimed at providing enough income for the workers for retirement.

However, non-compliance by employers has weakened the goal. The gig economy has increased the problem of Australian workers as work schedules can be modified and thus, fall out of the definition of employment. 

There is also a substantial segment of workers in low-paying or insecure jobs who are not able to secure sufficient retirement savings for themselves. 

Ultimately, the people who pay tax will be the ones to bear the burden of superannuation shortfall. So, the superannuation system needs an overhaul as it is unable to help the workers most in need to save for their retirement.

Government steps in to grant early access

Considering the rising unemployment and financial stress faced by the Australian workers, the government of Australia has allowed early access to their superannuation savings over the period of the next six months.

 

Qualifiedmembers will have the opportunity to retrieve $10,000 of their superannuation savings for the year 2019-2020(ending 30 June 2020)and anadditional $10,000 for the first quarter of the financial year 2020-2021 (beginningfrom 01 July 2020).

The overall cost to the government will be approximately $1.2 billion, which includes making early access to retirement savings tax-free, as highlighted in the stimulus package worth $66.1 billion announced on 22 March 2020.

The move comes as a support to several workers and individuals who have been financially affected due to coronavirus. The measures are expected to cushion the coronavirus impact to an extent. 

 

 

In addition to these measures, the government also announced a reduction in superannuation lowest drawdown needs for pensions that are account-based and related products by ~50% for the years 2019-20 and 2020-21. The move is likely to benefit retirees by allowing them more flexibility in building their superannuation assets.

Market experts say that only those around the retirement age should consider changing their investment mix in their Super so that more low-risk assets make a part of their savings.

While moving into a more stable portfolio can provide some protection,changing your investment mix now could result in losses and make you miss out on the stock market rebound.


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