Superannuation weathering COVID-19 crisis

Rainmaker Information

Australia’s superannuation savings pool has withstood the COVID-19 financial crisis so far, falling just 0.3% in the 12 months to 30 April 2020, while bolstering cash reserves.

Australia’s prudential regulator for the superannuation system, APRA, has just released its latest quarterly industry snapshot. It shows the superannuation system is in remarkably strong shape given the economic shock of COVID-19.

This should give Australia’s 12 million super fund members and their families confidence that while their superannuation has been buffeted by COVID-19, their superannuation savings are safe.

Illustrating this, while APRA’s figures show Australia’s superannuation savings pool contracted 7.7% during the three months between December 2019 and end March 2020, over the 12-month period to end of April 2020, it decreased by just 0.3%.

2019 was one of the best years ever for superannuation savings in Australia.

“Compared to the 23% fall in global stock markets in first quarter of 2020 as well as the 14% fall over the 12-month period to March, this is a stunning result,” said Alex Dunnin, executive director of research and compliance at Rainmaker Information.

Dunnin said even though the SelectingSuper MySuper performance index, which is compiled by Rainmaker, fell 11% during this three month period, over 12-months the index is down only 4%.

As a result, Australia’s superannuation savings have only fallen to March 2019 levels..

During the 2008-09 Global Financial Crisis the SelectingSuper index fell as low as -21%.

But not all parts of the superannuation sector are weathering the COVID-19 crisis equally.

The not for profit (NFP) super fund segment comprising corporate, public sector and industry super funds, contracted 5% in the March quarter.

Comparatively, the retail super fund sector contracted more than twice as much, up to 12%. And Self-managed super funds (SMSFs) contracted 9% in the same period.

“Two-thirds of the decrease experienced across the superannuation savings pool came from APRA-regulated NFP and retail funds.”

“While the retail super segment holds roughly one-quarter of superannuation savings assets compared to the NFP segment that holds half, each segment fell by about the same amount in dollar terms.”

“APRA figures show the retail super fund segment holds 24% of their investments in Australian equities, compared to just 15% by NFP funds.

“Retails funds are more vulnerable to fluctuations in equities markets, however, industry super funds with a larger share of their investments in unlisted assets such as real property, infrastructure and private equity were better insulated from the worst of these equities falls.”

Liquidity also became a concern for some superannuation market

/Public Release.