Study finds superannuation funds ‘not harmed’ by early withdrawals

The $35.8bn of early superannuation withdrawals has had little impact on the investment performance of the funds.

More than 4.8 million Australians have taken advantage of the opportunity to access their superannuation.

The $35.8bn of early superannuation withdrawals has had little impact on the investment performance of the funds, according to a detailed study of the policy that was aimed to soften the financial blow of COVID on households.

According to a paper published this month by University of Melbourne academics James Brugler, Minsoo Kim and Zhuo Zhong, there was a “statistically insignificant” link between investment performance and withdrawals.

The policy, introduced by the Morrison government as part of a package of measures to support the economy, allowed super fund members access up to $10,000 in early super in each of fiscal 2020 and fiscal 2021.

“We do not find evidence to support that expectations of fund flows could significantly affect fund performance,” the authors said in their study.

“This could reflect that Australian superannuation funds actively engage in liquidity management. In anticipation of future outflows, funds manage their cash-like liquidity by pre-emptively rebalancing their portfolios and do so in a way that minimises transaction costs.”

However, the study acknowledged the early release scheme occurred unexpectedly and was announced about a month before withdrawals took place.

“These features ensure that the policy announcement of temporary early withdrawals constitutes a shock to fund flow expectations,” they said.

Super funds flows are usually stable and predictable and fund managers are not subject to sudden and large future outflows.

“The early release withdrawal scheme constitutes a large and significant shock to fund flows in the Australian pension system. Our analysis shows that funds with greater exposure to early release outflows do not suffer significantly worse performance than those that are less exposed,” they said.

They said “it remains an open question” whether the early release outflows affected the superannuation sector as a whole, or asset prices more broadly.

The findings came as regulator APRA revealed $35.8bn in payments had been made. More than 4.8 million Australians have now accessed their superannuation. Average payments to fund members were $7645, and average funds applied for in the second tranche were $8290.

Australia’s largest super fund, AustralianSuper, had the most applicants and paid out $4.9bn.

Australian super funds are on the track to end the year in positive territory, with returns buoyed by a 4.9 per cent sharemarket boost in November.

The dramatic turnaround in retirement savings follows rising optimism around the success of COVID-19 vaccine trials coupled with rock bottom interest rates which have lifted the market from the March sharemarket collapse after COVID-19 hit the global economy.

Figures from super research group SuperRatings released last week shows the median balanced fund — the most popular investment option — has delivered a 2.3 per cent return since the start of 2020.

The SuperRatings figures suggests funds may be on track to close the year as much as 3 per cent up on where they started, despite the first months of the pandemic sending balanced funds down as much as 10 per cent.