The impact of COVID-19 on Australia’s economy and communities is extraordinary. The United Nations Department of Economic and Social Affairs states this is a “much more than a health crisis. It is a human, economic and social crisis. The coronavirus disease (COVID-19), ….is attacking societies at their core”.
The core of what we do in the super industry is to help Australians prepare for their retirement by investing their mandated super funds for the long term. However, the world in which we find ourselves today is based on the immediacy of the here and now. The early release of super is a critical measure to help members survive this crisis. We need to support people now. These same people have supported our industry in the past and will again in the future.
There has been much public debate about the merits of the Federal Government’s early release of superannuation. On one side, we have the view that this is a concern as it reduces future funds for retirement income. On the other side, people are supportive of the emergency early release of up to$20,000 for Australians doing it tough. For funds concerned about their investments and costs, I look at it this way – now is the time to dig deep and implement your contingency measures, including drawing on contingency reserve if you must. It’s what it’s there for.
I believe it is right for Australians to be able to access their super in times like these. After all, it is their money. The focus should always remain on the rights of the individual, and it is our duty as an industry to help improve members lives when they need us the most.
What puts us all in good stead at times like these is good governance and sound risk management. If you have taken care of your risk management framework, you have liquidity levels with a reasonable level of buffer for extreme events. The Government early release of super mandated payment is an unprecedented change of the rules. For those funds most prone to the Covid-19 economic shock – with members disproportionately vulnerable such as young people and those in retail and hospitality – it is quite reasonable for a Super Fund to switch some of its longer-term investments to cash to meet such member payments if necessary after using its existing liquid assets. Funds are resilient enough to absorb the shock of an event like COVID-19.
Until we have a viable vaccination or cure, this may not be a one-off experience, so it makes sense to learn from the experience and prepare even better for future incidents like this while ensuring that members do not lose out long term on the extra returns that come from an illiquidity premium.
What is needed more than ever for the super industry and its participants is leadership. Now is the time for greater leadership and how we measure the success of such guidance. It’s not about investment leadership – it’s about how the super industry can lead with purpose and humanity.
Success must be measured by the way the superannuation industry positively touches the lives of its members and their families. Expect further developments in the area of risk management as regulators look at improving risk management towards member outcomes. Just as we should be prepared to work hard for a solution to COVID-19, we should also be observing how to put our industry and its participants in a more resilient position for future global crises.
Sean is Managing Director of McGing Advisory & Actuarial and is currently Deputy Chair of the ASFA Victorian Executive. These views are his own personal views.
Sean and the team at McGing Advisory & Actuarial provide a wide range of Superannuation support services including administration, investment, insurance, risk, governance and actuarial advice.