Early Access to Super Providing Headaches Across Industry

The government is expecting between 1.6 million and 1.7 million Australians will apply to access their super early either this year or next in order to take advantage of the move to provide early access to superannuation. While the policy has seen some funds scramble to shore up their liquidity in preparation for an exodus of funds, many fund trustees are worried about the implications withdrawing cash will have on the insurances of many of the most vulnerable applicants. All however, seem to agree on the merit of getting financial advice.

The Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume this week said 975,000 fund members had already registered interest in the early access scheme ahead of its opening for applications on Monday.

Liquidity Concerns
Some funds, particularly in the industry sector have voiced concerns about liquidity and the impact that a large number of withdrawals with have in some funds – particularly those with a high number of clients who are casuals and part-timers, one group that are expected to be prominent in applying for early access. Despite Hostplus seeking to withdraw $1.5 billion from one of the country's biggest property investment funds in anticipation of the payouts, Industry Super Australia chairman Greg Combet dismissed concerns saying there is no prospect of a liquidity crisis within any of the big industry superannuation funds.

Similarly, Reserve Bank of Australia governor Philip Lowe held no concerns saying, "The liquidity withdrawal from the super fund industry as a whole is perfectly manageable...for some funds, the withdrawals are going to be quite large, though, and those funds will have to shrink. But these funds have now had a month to get ready and they have further time before those withdrawals will take place."

Despite these re-assurances, there may be some concern for smaller funds. SuperRatings, the superannuation funds researcher, has prioritised conversations with 15 funds most likely to be impacted by liquidity concerns in light of the government’s new crisis measures. SuperRatings executive director Kirby Rappell noted that all the funds shared three common attributes: members with lower average account balances, funds with a greater focus on young members and have a reasonably high allocation to illiquid assets. Any changes to SuperRatings views on any of these funds, will likely result in action from researchers and investment committees at the licensee, platform and advice practice levels.

Unintended Consequences
Many advisers have voiced their fear over the implications withdrawing $20k could have on some of the more vulnerable, low balance accounts. Deloitte’s head of superannuation, Russell Mason, told Money Management that the Government’s move to provide early access to superannuation was well-intentioned but had significant unintended consequences.

“For many people, particularly new entrants to the workforce, casuals and part-timers, this could mean reducing their account balance to $0.  And if they have no account balance, their death and disability insurance will cease, leaving them with no cover. This is significant,” Mason said.

“Should a member who has reduced their balance to $0 die or becomes disabled, they or their dependents will not receive a benefit, potentially causing an even worse financial situation for them,” he said.

Further, Mason said that even when that individual was re-employed or returned to normal hours as a result of new legislation, their insurance would not automatically be re-instated until their balance reaches $6,000 meaning that for casuals or part-timers, they could remain uncovered for two to three years.

Administrative Logjam?
On top of these concerns, Industry Super Australia (ISA) recently conducted a poll that found up to 40% of those intending to apply for early release might be ineligible because they had not actually been adversely affected. Eligibility is dependent on the fund member having lost their job or suffering a significant reduction in work hours or business turnover. Industry Super chief executive Bernie Dean said that if too many people who weren’t eligible applied for the scheme, it could prevent those genuinely in need from accessing their money quickly and warned of the potential for an “administrative logjam of ineligible claimants”.

However, Senator Jane Hume was not impressed by the imputation and said the research was a “tawdry attempt to undermine confidence in the early release of super mechanisms” and accused the ISA of push polling. Coincidently, this Tuesday, APRA announced it will monitor the progress of super funds in making early release payments to their members every week, with individual funds to be named and shamed on the time taken to process member payments.

Hume said that people needed to take the decision about early access seriously and that there's going to be a trade-off between taking money out of superannuation now and keeping it in and locking it up for their retirement savings in the future. She recommended anyone confused about the process and its implications should speak to a trusted financial adviser.

Pandemic Spooks Clients
Senator Hume's advice should be heeded, if comments from a leading fund are any guide. Sunsuper head of advice and retirement, Anne Fuchs said there has been emerging differences between “advised and non-advised clients”, which highlights the need for financial advice in this situation. Fuchs, was quoted in Professional Planner saying “Members here at Sunsuper that don’t have a planner are switching to cash and calling us for validation and we can’t give that,” she says. “Over the last week and a half there’s been a huge overwhelming flow of requests.” In comparison, advisers have spent years coaching their clients on how to deal with a crisis event. Fuchs said, “Advisers have done a good job of advising clients, which is great news…there were a lot of lessons learnt in the GFC and we’re a better prepared profession.”

Is there any more encouragement needed to seek professional, qualified financial advice?

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