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Super assets fall by 9.2 percent in March quarter
Total assets of Australia's super savings pool fell by 9.2 percent over the March quarter, the largest quarterly fall since the ABS time series began in June 1988. The decline was slightly larger than the 9.0 percent decline at the height of the GFC in December 2008.
According to an ABS report released today, the primary contributors to the 9.2 percent decline in superannuation assets were falls in equity units held in investment funds, directly held domestic equity, and foreign equity holdings. Debt securities also fell, driven mainly by redemptions of government bonds. These declines were partially offset by an increase in deposits.
While superannuation funds sold off some equity holdings, valuation losses drove most of the decline in value.
In response to COVID-19, the ABS data shows that superannuation funds partly shifted from debt and equity securities into deposits.
According to the ABS, this was due to funds receiving the redemptions of equity units from non-financial and non-money market investment funds, and there were more member requests to switch from high to low risk investment options.
Further, funds paid variation margins on derivatives used to hedge foreign currency assets, and prepared for members to request early access to their superannuation entitlements through the Covid early release scheme.
Meanwhile other ABS data released today shows that average household wealth per person in the March quarter decreased 2.3 per cent (down $9,982) to $428,585 per person, the largest decrease since the September quarter 2011.
A fall in superannuation balances (8.2 percent) and directly held equity holdings (5.3 percent) contributed to reversing the household wealth gain in the December 2019 quarter.
These falls were partly offset by a real (inflation adjusted) holding gain on land and dwellings of 1.9 per cent. Overall, total household wealth decreased 1.8 per cent in the March quarter 2020. A 0.5 percent increase in the population was the reason average wealth fell more than total wealth.
OECD warns on early super measures
International policy think tank – the Organisation for Economic Co-operation and Development (OECD) – has warned about the dangers of countries expanding further any COVID measures that have allowed workers to tap into their retirement savings.
The OECD policy brief reveals that Australia isn’t the only country that has allowed its workers to use some of their retirement savings as a form of income support during the crisis. In total it appears that at least some workers in about 15 OECD member countries – including the US, Canada, the UK and France - were able to access their retirement savings during the crisis.
However, the OECD says accessing retirement savings should only be allowed in exceptional circumstances and must be a last resort.
The report notes that the goal of retirement plans is to finance retirement and recommends governments look to other ways to boost the incomes of workers facing financial hardship.
“Allowing withdrawals from retirement pots may lead not only to lower retirement income adequacy but also to materialising asset value losses, and liquidity and investment management disruptions,” the report says.
“The main emergency mechanisms that governments have, and may want to continue to use, to assist people with the large temporary losses in income, are aid programmes such as unemployment programmes. Access to retirement savings should remain an exceptional measure based on individual specific circumstances and based on regulations already in place for that purpose.”
In outlining potential impacts to the retirement savings system, the OECD says that associated lockdowns and the related economic downturn are impacting retirement savings, retirement savings systems, providers, regulators and supervisors, potentially leading to future lower incomes in retirement.
APRA moves forward with Covid data collection
APRA has renamed its planned ongoing data collection initiative as the COVID-19 Pandemic Data Collection (PDC) and has outlined the reporting requirements and start dates in a letter to RSE licensees.
The letter gives an overview of the data collection project, which is aimed at providing ongoing assessment of the impact of Covid-19 on the superannuation industry.
APRA will be publishing the data collected through the PDC at an industry level on a monthly and quarterly basis.
The purpose of PDC is to:
The PDC comprises two components. The first component contains information that is required to be reported monthly, which will cover information in relation to complaints, insurance, advice and operational resilience.
The second component contains information that is required to be reported quarterly, which will cover information on liquidity, early release demographics and, in addition, a one-off collection of insurance cancellations relating to the Protecting Your Super reforms.
The first component of reporting is due 31 July 2020 and will cover the period of April 2020 through to June 2020.
The PDC will be collected via D2A. APRA will advise submitting entities when the collection is available in D2A and expect this to be in early July 2020.
APRA will conduct a review into the continued need for the PDC in late September 2020.
APRA will hold a webinar in early July to allow for questions from the industry. Details for registering for the webinar will be released shortly.
In the meantime, feedback on the PDC can be sent to Mel Birks at AIST firstname.lastname@example.org, and it will be collated and sent to APRA, or can be sent directly to APRA email@example.com
Room for improvement on member communications says ASIC
ASIC has reminded trustees of the need to ensure their members have a full understanding and awareness of the recent minimum drawdown pension changes.
In an updated FAQ, ASIC says trustees should provide affected members with a clear, factual explanation of the changes, and warns that unexpected changes to pension payments can cause members financial and emotional distress. It notes that, without the right information, members may miss out on an opportunity to decrease their pension payments when this would suit them best.
ASIC also made a number of recommendations relating to member communications around insurance claims handling and low-balance inactive accounts.
ASIC says trustees should frame their communications to assist members in the process of making an insurance claim, for example:
Regarding low-balance and inactive accounts, ASIC is considering whether additional guidance is required, noting there have been instances of incomplete or inaccurate messaging around early release and low balance/inactive accounts..
ASIC has acknowledged that this may be due to trustees needing to develop member messaging quickly, and the complexity of interaction between the early release mechanism and PMIF/PYSP.
ATO to verify eligibility of early release applicants
The ATO has embarked on a data matching program to verify eligibility criteria for the Government’s three Covid income support measures, including the early release super scheme.
As part of this program, the ATO will acquire:
The data collected from Services Australia is expected to relate to approximately three million individuals, with the data collected from the state and territory correctional facility regulators relating to approximately 45,000 individuals.
Meanwhile the ATO has ramped up its warnings about misuse of the early release scheme, highlighting that individuals who use the COVID early release scheme for “tax avoidance” purposes rather than financial hardship will face serious consequences.
In a media release this week, the regulator said it had received intelligence about the practice of individuals withdrawing their super through the COVID early release measure only to re-contribute so as to qualify for a tax deduction.
Noting that this is not in the spirit of the measure, ATO Deputy Commissioner Will Day said severe penalties could be applied to “tax avoidance schemes or those found to be breaking the law”.
As outlined last week, the ATO is monitoring behaviours of individuals who apply for the early release of super including those: