Over $100bn liquidity needed for super system
An actuarial consultant has called for a review of ways to mitigate cash-flow risks in superannuation while estimating that more than $100 billion in potential liquidity may be needed to cater for Australia’s early access to super scheme.
According to managing director of Connectingthedots Andrew Scott, around $86 billion will be needed to address the immediate cash-flow needs of the Australian super system if one-third of Australia’s labour force of 13 million individuals claim the early access benefit.
Should that proportion increase to half of the workforce, something Mr Scott said is “not beyond the realms of possibility”, that estimate rises to $130 billion.
Further, Mr Scott noted that neither of those estimates includes any additional liquidity needs created by members switching their accounts from balanced or growth options to more conservative cash options.
“This is quite likely once the investment returns for 2019–20 become known to members through their annual member statements,” Mr Scott said.
“The additional need for liquidity will become even more pronounced if contribution levels to superannuation also reduce in line with wider losses to income levels and employment.”
Reinstating super objective bill a first step
As a result, Mr Scott has proposed a reinstatement of the presentation of the Superannuation (Objective) Bill 2016 to Parliament and have it passed into law.
He said alleviating cash-flow risks in the super system could be progressed by continuing the legislative process towards preferring retirement incomes over lump sum benefits because income benefits lighten the immediate liquidity needs of superannuation funds by spreading payments over time.
“Fortunately, this process was already in place with the proposal to define the primary retirement objective of the superannuation system in the Superannuation (Objective) Bill 2016,” Mr Scott said.
“Unfortunately, this bill lapsed in 2019 with the calling of the Australian federal election.
“In the community’s original response to this legislation, the introduction of a retirement objective had broad support from many leading organisations as per the Senate Economic Committee’s response.
“Now would appear to be the ideal time to re-examine ways to mitigate any cash-flow risk.”
Adrian Flores
Adrian Flores is the deputy editor of SMSF Adviser. Before that, he was the features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.
You can email Adrian at [email protected].
