Labor and Coalition policies risk poorer superannuation returns: SMC
Labor and Coalition policies could lead to liquidity risks and poorer returns in superannuation, according to Super Members Council analysis.
Superannuation policies from Labor and the Coalition could lead to liquidity risks and poorer returns in superannuation, with some member returns to be hit by as much as $300,000 over their working life, the Super Members Council (SMC) warns.
The Reserve Bank has warned of how policies around superannuation could lead to significant withdrawals of super and consequently restrict the way such funds invest and make returns.
Labor’s policy to tax unrealised capital gains is expected to see as much as $25bn withdrawn from the system as superannuants try to avoid the new tax.
The SMC has not estimated the impact of Labor’s unrealised capital gains tax on super withdrawals, but using new modelling it says the Coalition's superannuation withdrawal for first-home buyers policy, supported by Sussan Ley, could end up hitting member returns by as much as $300,000.
In a submission to the corporate regulator, the SMC says the Coalition policy allowing Australians to take up to $50,000, or 40 per cent, of their superannuation fund to buy their first home would increase liquidity risks for funds.
This could lead to a change in the way they invest and a dampening of returns.
The SMC’s submission draws upon modelling from super-backed Frontier Advisors.
“If current preservation rules were relaxed such that superannuation funds could no longer act as long-term investors, and were no longer able to invest in unlisted assets, net returns could be lower by 0.3-0.6 per cent each year,” the council’s submission to the Australian Securities and Investments Commission said.
A decrease in returns of between 0.3 and 0.6 per cent is the equivalent of an average member having between $150,000 and $290,800 less at retirement in today’s dollars, the analysis claims.
“Changes imposing liquidity constraints would clearly harm the best financial interests of millions of Australians,” it said.
The analysis drew upon the experience in New Zealand, which has had two decades of a similar superannuation withdrawal scheme to Australia.
New Zealanders who have been KiwiSaver members for at least three years are permitted to withdraw their savings to buy a first home, subject to maintaining a minimum balance of $NZ1000.
Since the beginning of the 2011-12 financial year, about 379,000 New Zealanders have withdrawn a total of just over $NZ9.7bn from their KiwiSaver accounts towards the purchase of first homes.
“The New Zealand experience also shows the likely impact on Australians’ retirement savings if such a policy were implemented here,” the analysis highlighted.
The analysis points out that the lower returns experienced in New Zealand stem from the need for super funds to have higher liquidity requirements in their portfolios because of the withdrawals to buy a home.
That means less investment in unlisted, longer-term investments which can attract higher returns.
“Over the long term, funds with more illiquid investments such as unlisted infrastructure have experienced higher risk-adjusted returns, which suggests they have captured a return premium for investing in these assets,” the submission notes.
The latest Reserve Bank financial stability review in March noted that work has been under way by Council of Financial Regulators “for some time to assess risks to the Australian financial system from the superannuation sector”.
The RBA said Australia’s superannuation fund sector “poses fewer financial stability risks than large pension funds … in some advanced economies”.
“Australian superannuation funds also have higher cash holdings than pension funds in some other advanced economies, making them more resilient to liquidity stress.”
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