The Australian superannuation industry, which manages approximately $3 trillion dollars in assets for its members, suffered a major hit to both returns and withdrawals due to the widespread ramifications of the coronavirus pandemic on the broad financial markets and increase in unemployment. The Federal government’s early release scheme has allowed eligible citizens and permanent residents to apply for up to $10,000 in 2019-20 and a further $10,000 in 2020-21 to help out individuals that have seen job losses, reduction in work hours or are facing financial hardships.
As the health crisis continues to unfold during the first two quarters of 2020, the Australian super industry endured a great deal of stress which translated into lower returns for the savings of Australian workers. The rate of return (ROR) during the March 2020 quarter for the industry decreased to a record low of -10.3% which is the lowest quarterly ROR recorded since APRA first started tracking returns around 15 years ago. Furthermore, data from APRA also showed that industry ROR for the 12 months ending March 31 dropped to -3.3%. A further breakdown of superannuation assets shows the total superannuation assets declining in the March 2020 quarter in comparison to 2019 with total assets down 0.3% to $2.73 trillion. The losses were primarily attributed to the self-managed super sector which returned -4.1% whereas APRA-regulated industry and retail funds gained 1.1%. Figures from the Australian Bureau of Statistics also showed that the value of equities in the superannuation pool fell 23%, overseas assets decreased 3.2% and investments in trusts down 11.4%.
Also, the federal government’s early release scheme saw a substantial wave in emergency withdrawals from members’ super accounts to ease the financial pain from the virus pandemic. To date, more than $15 billion has been withdrawn as approximately 1.8 million Australians have had their applications approved for the early withdrawal scheme with the treasury forecasting approximately $27 billion would be withdrawn across the industry. Many of the applications saw the maximum withdrawal limit of $10,000. A study of around 13,000 people who applied for and were eligible for the early withdrawal scheme shows that much of the money was used for lifestyle and leisure than for necessity. Around 64% of total spending was attributed to discretionary items such as clothing, furniture, restaurant food and gambling and alcohol. This brings to question about the criteria for the application and to review the program and impose stringent rules for withdrawals. Ultimately it is the people’s money and can be used for a range of reasons but early withdrawals that aren’t utilised for the most important reasons can erode future savings and retirement income as individuals forego the compounding returns for short-term and short-lived discretionary and leisure spending.