Early super smashes through $27bn ceiling

By Sarah Simpkins and Lachlan Maddock

July 21 2020
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Superannuation funds have received approved applications for $28 billion under the early release scheme, blowing past the initial government estimate for how much would be redeemed.

APRA data released on Monday showed $25.3 billion had been paid out by the funds to 12 July.

But this total is set to surpass the initial $27 billion estimate the Treasury made for how much would be withdrawn in the next APRA data set to come, as indicated by the accumulated applications.

During the week to 12 July, super funds made payments totalling $6.2 billion to 734,000 members, bringing the total number of payments to around $3.3 million since the early raid commenced.

Close to one million applications (800,000) were from people doubling back for a repeat withdrawal in the second tranche of the scheme, with their average application amount being $8,755.

In contrast, 2.8 million applications have been made for initial withdrawals since the scheme began, with the average payment being $7,434.

The average payment since the scheme’s inception was $7,718.

All of the funds had taken 3.2 business days on average to make the payments, with 96 per cent of the applications being paid within five business days.

The top 10 funds with the highest number of applications received from the ATO have made 2.2 million payments worth a total of $16.5 billion.

The average payment from the 10 funds was $7,641, with 97 per cent of payments made within five days.

What will be the impact of the early access to super scheme on Australian super funds, and therefore, the retirement savings of Australians?

According to new analysis, the heavy burden caused by the need to liquidate assets is taking a toll on Australia’s super funds.

Right Lane has estimated that 54 of Australia’s 90 super fund providers could be in negative cash flow before the end of the 2020–21 financial year.

It has cited market shocks, plummeting super contributions and the early access scheme as all contributing to the dire forecast.

“Australia’s superannuation system is confronting its biggest challenge ever as it attempts to manage the impact of ongoing rising costs while [cash flows] and revenues decline rapidly,” said Abhishek Chhikara, associate principal at Right Lane Consulting.

“These competing forces are not sustainable for short to [medium term] and the result will be additional pressure on funds to merge or cut cost.”

Barring the challenging market landscape, “our research has found that increased withdrawals from the ‘early release’ scheme alone could put 14 additional funds at risk of falling into a negative [cash flow] position in FY20”, Mr Chhikara added.

“That comes on top of the 40 funds who were already cash-flow negative going into the COVID-19 crisis,” he said.

The associate said super funds are increasingly finding it harder to grow while keeping costs low.

“The next three years will be [a] critical period for the system as it tries to recover from the impact of COVID-19,” he concluded.

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