Australia’s pension funds fear government moves to give people early access to their retirement savings to cushion financial hardship will compound pressures caused by the market rout.
People in financial stress will be allowed to access up to A$10,000 ($5,765) of their pension savings in the fiscal year ending June 30, and another A$10,000 the following fiscal year, effectively allowing them to withdraw A$20,000 in the next four months.
The move, part of a sweeping package announced Sunday to combat the economic havoc caused by the coronavirus outbreak, will put as much as A$27 billion back into the pockets of working Australians, Treasurer Josh Frydenberg said. He added that funds could handle the withdrawals, which amount to less than 1% of total industry assets.
While pension funds are ready to work with the government to implement the proposal, “this is an issue that must be handled very carefully in order to prevent the compounding of liquidity pressures that may be faced in the current market conditions,” Industry Super Australia Chief Executive Officer Bernie Dean said in a statement.
The benchmark S&P/ASX 200 fell 7.2% in early afternoon trading in Sydney. It has lost about 38% since reaching a record high Feb. 20.
Australia’s pension funds are already balancing liquidity pressures as members shift into conservative investments like cash and bonds from so-called growth options that have a high allocation to stocks. Funds have also been putting billions into unlisted assets like airports and toll roads that aren’t easily sold.
The nation is facing a wave of unemployment, particularly for casual, low-paid workers after the government yesterday ordered pubs, casinos, restaurants and other venues to close, saying the shutdown could last at least six months.
The Financial Services Council, the peak body for Australia’s fund management industry, said it recognizes the current hardship regime isn’t equipped to deal with national emergencies and will work to ensure liquidity and systemic risks are managed.
“We are pleased to see that this is a temporary measure as part of a broader income support package,” said Sally Loane, the council’s chief executive. “Accessing superannuation should not be the default response to providing income support for Australians in need over the short term.”
The government insists pension funds have enough cash on hand to meet redemptions. The prudential regulator also requires funds to ensure they can withstand market routs and high redemptions, a lesson from the financial crisis when MTAA Super almost crumbled because it invested in too many unlisted assets.
While AustralianSuper, the nation’s largest pension fund, welcomed the proposal, the efficient running of the sector and the plan’s timing and processes “will need to be closely considered,” CEO Ian Silk said in a statement.
“AustralianSuper would welcome the opportunity to work closely with the Federal Government and regulators to finalize the details of the scheme,” he said.