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Tracey Spicer talks to Eva Scheerlinck, CEO of the Australian Institute of Superannuation Trustees, about how COVID-19 has impacted super member behaviour and what we can learn from previous financial crises.
Hi, Tracey Spicer here. As a journalist, I’m fascinated by human behaviour – the motivators and their outcomes. And ever since the start of the pandemic. I’ve been wondering about how people’s attitudes and behaviours have been changing with regards in particular to retirement planning and superannuation. Today, we’re joined by Eva Scheerlinck. Now she’s the CEO of the Australian Institute of Superannuation Trustees. Hi Eva.
Hello Tracey. Nice to be with you.
And you. What changes have you seen in consumer attitudes and behaviour since the start of the pandemic?
Yeah, COVID-19 has certainly had a huge impact, obviously. So there’s the health impacts and the anxiety that comes with that. And then at the same time, the immediate response in world markets with, you know, with markets falling right around the world and the anxiety that that brings with it. And that’s obviously, there’s been a bumpy road for the last few months and it’s made people very anxious.
We did see, just like we did during the GFC back in 2008, 2009, some members, particularly those I guess that are a bit closer to retirement, making changes to their asset allocation and choosing a slightly less risky option and moving out of maybe what they were in, the growth option perhaps, to a less risky category like cash. We saw that during the GFC, too.
It’s a difficult thing because I understand people’s anxiety. But by the same token, when the markets are at the bottom, you’re locking in that loss. And then if you decide that you want to sort of buy back into the market, unfortunately, you’ve kind of locked in that loss and then buying back in at a higher price.
So we’ve seen now, I think as super funds have started to release what their end of financial year figures are, actually they’re coming in around sort of zero or 1% returns rather than actually the significant losses that we saw right at the beginning of the pandemic.
So while I understand that some people may have made some changes to their asset allocations, it probably might have been a bit wiser to stay where you were because the markets have recovered pretty well.
So that’s one of the changes that we’ve seen in behaviour. The other is, I think, increased engagement overall with superannuation. One, because it’s very hard to avoid the media coverage about what’s happening in the markets, but also the government’s early release of superannuation initiative that has seen, you know, two and a half, close to three million, I think, Australians access that scheme, too. So it’s seen increased engagement from that perspective.
This is fascinating because it’s another reminder, isn’t it, that we are humans. We are driven by emotion. We’re not necessarily driven by logic in this respect.
Yeah, that’s that’s exactly right. And, you know, you can’t blame people for panicking. I mean, a global pandemic like this. Now, most of us have never lived through before. And the uncertainty impacts everybody.
There’s been some commentary recently around the fact that people withdrawing their super early has now exceeded $30 billion in total. Would you characterise this as a run on superannuation or is it too early or too dramatic to say that?
So $30 billion represents about… So we’ve got a $3 trillion dollar industry, so $30 billion sounds like a big number, but $3 trillion is a much, much bigger number. So in terms of the impact on the funds, it’s not seen at all as a run. What’s happened, obviously, is that those industries that have been affected most by people losing their jobs or having their hours reduced, the industry funds that service those members have had a bigger impact in terms of the number of applications for early release.
It is, however, a staggering number of people who feel so anxious and so uncertain about their financial wellbeing and their future that they have made the decision to take money out of their future retirement savings pot, and that probably concerns me more than anything else. Because once you do that, it’s actually very difficult to then rebuild that wealth in your superannuation account.
Are any of the funds offering discounted fees or anything innovative to members to help get them through this difficult time?
So certainly the focus has been on trying to make sure that their systems were ready to provide early release to super in a very quick turnaround. So the regulator had set sort of a suggestion of making sure that the claims were processed within five days so that the focus has been on that side.
Super funds are not used to giving out any sort of money like an ATM to members. They’re not set up that way. They take the money and keep it for a very, very long time until people retire. So they’ve had to make a lot of internal changes to their systems in order to be able to have that cash available to provide to members.
We’re obviously looking at what other alternatives there might be to help people to bridge that gap for their retirement savings in the future if they’ve taken that money out.
One of the things that super funds do have to consider, though, is the members as part of the fund who have not chosen to take money out and the equity for those members if there are fee discounts and the like. But having said that, everything’s on the table, obviously, in terms of how how super funds can look after their members.
So there could be some kind of incentives in the short term offered by superannuation funds in order to I guess stem the flow of people taking their money out.
Yeah. Well, where we’re looking to see whether the government actually will introduce some sort of incentive for people to top up their super funds again. So we know that some people have taken the money out just in case, you know. If in the long run, it turns out that they haven’t needed that money to help support them through the crisis, to make it easy for them to potentially re-contribute that money.
But obviously, there’s a lot of people who are in severe financial hardship as a result of this pandemic. And because of that, not everyone is going to be in a position to be able to afford to top up. And so for that, we are really hoping that the government will stick to its plan to increase the superannuation guarantee contributions over the next few years, up to 12%, because that will help.
But also maybe to allow some special provisions, particularly for the low income earners who’ve really suffered by taking this money out of their account and in some cases closed their account completely to allow them over the next few years to top that up if they get a chance to do so.
What’s your one message, to someone watching this interview and feeling anxious, looking at history, at global recessions and depressions in the past, and worried about what the markets might do in the next few years.
Yeah, look, I can’t give financial advice, Tracey, as you know. And certainly past performance is no indicator of future performance. However, you know, the research does point out over hundreds of years that market cycles do go up and down and investors can expect to have negative return years once every seven to 10 years.
So markets do correct. We’ve seen it over the last few months. There is still obviously a lot of uncertainty. But for people to have faith, particularly with superannuation, as an investment, because it is a long term investment, it’s not something that we need to worry about sort of on a daily basis.
Put your money in a good fund. Let the trustees make the decisions on behalf of you in your best interests and feel comfort in the fact that they’re really looking after the members’ best interests in the long term. Even the average performance over the long term is still a year on year return of 5-7% in most of those funds, which is a good outcome.
It certainly is. Eva Scheerlinck, thank you so much for your time.