Senator criticises ‘weak’ specialised super funds

Industry-focused super funds with members from single sectors have been called a “structural weakness” in the system.

Bankers’ association chief Anna Bligh with Assistant Superannuation Minister Jane Hume. Picture: Kym Smith

Industry-focused superannuation funds with membership drawn from single sectors in the economy have been revealed to be a “structural weakness” in the $3 trillion retirement savings system “that’s been hiding in plain sight”, according to Assistant Superannuation Minister Jane Hume.

With the super sector poised to enter another round of mergers due to plunging markets and a squeeze on cashflow due to the government’s plan to allow early release of savings for retrenched workers during the coronavirus pandemic, Senator Hume said it could be unwise for super funds to wed themselves to other funds serving the same industry.

Speaking over videolink at an industry conference on Monday, Senator Hume named SunSuper, AustralianSuper and National Australia Bank’s MLC for strongly supporting the plan to allow workers to draw down up to $20,000 from their savings across the next two years.

“These are the funds that quickly realised they are capable of responding in a timely manner because their membership reflects a broad cross-section of the economy, not a single industry,” Senator Hume said.

“Those funds whose members are congregated in sectors hardest hit by virus, particularly smaller funds, unless they have risk-managed their investments for a crisis, may find this period very uncomfortable.

“Discomfort is no excuse to not release members’ money — their own money — in a time of need. Any fund who refuses a member access to their money after an ATO determination is essentially admitting that their investment governance was cavalier or their systems inadequate. I can’t imagine a bigger signal to members, to the media and to regulators.”

Most small industry funds attain a cohort of savers through industry-specific enterprise bar­gaining agreements, meaning membership can be concentrated in sectors that have been hammered by the government shutdown aimed at arresting the spread of COVID-19, such as the retail, hospitality, clubs and tourism sectors.

Moreover, some funds are heavily weighted towards younger super members, who may be more willing to dip into meagre retirement savings.

Hostplus chief executive David Elia, whose large $40bn fund serves workers in the hospitality and tourism industries, said the fund had “ample liquidity” to support members and the fund stood ready to do its part.

“However, we recommend that members carefully consider the long-term impact on their superannuation savings before seeking to withdraw cash from their super accounts,” Mr Elia said.

On Monday Kevin Davis, a panel member of the government’s 2014 Financial System Inquiry, said there were “better alternatives” to the government plan that wouldn’t force funds to sell assets at depressed prices.

“That alternative involves a policy change permitting government (Reserve Bank) liquidity support and doesn’t have to involve a government subsidy to ‘the super funds’ (actually to their members),” Professor Davis said.

“My policy preference would be to allow members to borrow from their super fund against the security of their member balances with member repayments of their loan to begin only when their incomes have recovered sufficiently,” he said.

AustralianSuper chairman Don Russell said about 2 per cent to 3 per cent of his fund’s members had switched their savings into cash.

“This is well within the stress-testing levels on the liquidity of the fund. It is not a wise thing for members to do to switch out of the balanced option to cash at this time,” Dr Russell said.

First State Super chief Deanne Stewart said people would draw on their super as a “last resort” because they would be crystallising losses. “We are geared up and really well diversified for exactly these sorts of moments,” Ms Stewart said.