Use superannuation system to turn economy around

Super funds will play a vital role in kick-starting the Australian economy.

There’s still a long way to go, but now is the time for policy and business leaders to turn their minds to how we pull Australia’s economy out of the depths of this downturn.

And, just like it did after the global financial crisis, our $3trn super system is well placed to do its share of the heavy lifting.

Superannuation assets exceed Australia’s annual nominal GDP, as well as the market capitalisation of the stock exchange.

A strong super system means a strong Australian economy and vice-versa. This interwoven strength will be vital for economic recovery as we come through this crisis.

Our super system draws its strength not just from the Australian economy but the years of stable policy settings that allow it to invest for the long-term. The assets of industry superannuation funds now exceed the other segments of the super system. We understand the responsibility this places on us. It is incumbent on us to safeguard not just our members savings but the system and the economy that underpin it.

With over five million members and more than $700bn in funds under management, industry super funds hold a major stake in our economic life through investments in listed companies, debt markets, infrastructure, property and the wider financial system. We are important providers of liquidity to the banks.

Industry super funds collectively own just under 10 per cent of the ASX, lend to Australian businesses, invest in important sectors including aged care and technology start-ups, and hold about $80bn in Australian infrastructure and property. Our capital expenditure on infrastructure in one year created or supported 46,000 jobs. We are contributors to growth, jobs and productivity and are aiding Australia’s current account by investing overseas and repatriating dividends and capital gains. This economic activity will be vital to assist in the economy’s recovery in the months and years ahead.

There’s been a lot of commentary lately about how the industry superannuation funds are faring in the midst of the COVID-19 health and economic crisis, and the government’s decision to enable super fund members to withdraw up to $20,000 to assist with the hardship imposed by the pandemic.

Listed equities and other asset prices have fallen substantially, impacting people’s super accounts. In response, some individual members have been switching their super investments into cash.

Stable policy

The Australian dollar has been volatile, affecting some super fund foreign exchange hedging positions.

And the decision by the government to allow members to withdraw money has also, for the first time in over 30 years, punched a hole in bipartisan policy that has preserved super savings until retirement. All of these events place pressure on the liquidity of the super funds. But let me be blunt: the industry super funds are effectively managing these liquidity pressures.

And let me be clear about something else. The industry funds will do everything necessary to help people in hardship by accessing up to $20,000 of their super in these extraordinary times. These are members of our funds and we will help them. But it is also in everyone’s interest that profound policy changes to super, such as the recent suggestion to suspend super guarantee contributions, go no further. Additional policy-induced liquidity pressure will restrict the capital available to invest for the future. Maintaining stability in policy settings for super will be critical for the economy as we emerge from the pandemic, and that means it’s critical for members.

Industry super funds typically invest with a 20 to 30-year investment horizon. The purpose is to deliver long-term returns to super fund members when they reach retirement.

This long-term horizon can be a vital element of Australia’s recovery from the COVID-19 shock. It will be critical to the recapitalisation of companies and investment in job creation.

This occurs in a few ways — the first is on a macro-level.

During a downturn superannuation can operate counter-cyclical to the market. As others are dumping stocks, super with a steady cashflow from contributions, and no leverage, can buy. This puts more liquidity into the market and mitigates volatility.

The second is investing in good Australian businesses with patient capital. A focus on long-term returns leads to sustainable business growth, which creates and supports jobs.

And third, industry super funds have a strong commitment to invest in local infrastructure and property. These investments in ports, rail, electricity distribution, renewables, aged care, airports and the buildings people live and work in, drive growth and create jobs.

The benefits and profits from our infrastructure and property investments go back into the super accounts of the Australian workers who built them and use them every day.

Further, industry super funds are keen to partner with government, federal and state, to finance the projects that will get Australians working again.

But the capacity to contribute in all of these ways rests upon stable policy settings. Market disruption is one thing. Ill-conceived policy suggestions that contribute further liquidity pressure risk undermining Australia’s economic recovery and financial stability.

In coming weeks and months there will be a need to recalibrate from near-term health and economic crisis management to longer-term recovery.

This will be a tough task, requiring unprecedented discipline and unity across our society. I am sure that across Australia’s superannuation sector everyone stands ready to play a part. On behalf of the industry super, we will be there.

Greg Combet is the chair of Industry Super Australia and IFM Investors.