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Early release super scheme hurts the young and low paid
Those Australians who can least afford it will be hit hardest by an estimated $100 billion COVID super shortfall in retirement savings. Latest analysis by the Australian Institute of Superannuation Trustees (AIST) shows low paid, young Australians, women, and casual workers are disproportionately represented among applicants for the COVID early super release scheme.
AIST CEO Eva Scheerlinck says the scheme has forced many people to choose between poverty now or poverty later. “These vulnerable Australians are unlikely to recover from this without targeted policy intervention,” she added.
The data reveals members who made early release applications had an average of 20% less super savings than those who didn’t apply, and those aged under 35 withdrew a third of their total super balance.
It’s also estimated another 15% of members under 35 completely drained their super before 30 June. On average, women withdrew more super than men, accounting for a higher portion of their already lower super balances.
“Given the difference compound interest makes, a withdrawal made at a younger age has a big impact on retirement balances of this generation,” Ms Scheerlinck said. “Catching up contributions later in their working life will cost significantly more than the amount withdrawn and will be difficult to achieve for many low-income earners.”
‘Herstory’ of superannuation
Women aged 55 and older are the fastest growing cohort facing homelessness in Australia today, but a new report by progressive think tank Per Capita identifies what can be done to mitigate women’s vulnerability to poverty in retirement.
Called The Herstory of Superannuation, the report looks at the direct and indirect discrimination against women in the provision of retirement savings systems and reveals the historical reliance on their partner’s income and savings and resulting financial insecurity throughout the 20th century.
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It also shows that it is not until Gen X and millennial generations that women have received compulsory superannuation throughout their working lives and have been able to pay for their retirement.
The report was commissioned by Women in Super. To download the full report, including recommendations for addressing gender inequity, go to percapita.org.au.
Confusion about ESG
When looking for ethical and sustainable investments, it’s no surprise you’re a little confused.
Investment research company Lonsec says a lack of clarity around environmental, social and governance (ESG) approaches to investing is making it harder for investors to choose products that fit their objectives and values.
According to Lonsec analysis, relying on ESG product scores and labels alone is misleading, Data shows that 19% of Australian equity managers rated by Lonsec score highly for ESG awareness but poorly for sustainability.
“The traditional ESG approach tends to be more about process and less about outcomes,” says Lonsec’s Head of Sustainable Investment Research Tony Adams. “ESG fund managers tend to look at sustainability factors in terms of the risks they pose to a company’s business model,” Mr Adams says. “Academic research supports the assertion that companies that follow strong ESG standards are more likely to outperform those that don’t.”
He warns that while ESG analysis is important, it can create confusion for investors looking for products that explicitly align with their values. “In some cases, you can end up with a portfolio that looks very similar to the broader market when it comes to exposure to things like fossil fuels, gambling, tobacco, or deforestation. For many investors, ESG integration might sound good, but in practice it will often fail to meet their expectations.”
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Caps complexities cause confusion for SMSFs
A growing number of SMSFs may end up paying more tax than needed due to miscalculating their Total Superannuation Balance (TSB) or Transfer Balance Cap (TBC). Although fund trustees are responsible for getting it right, the complexity of the system highlights mounting frustration among SMSF holders and their advisers.
Back in 2017 when TSBs and TBCs were first introduced it all seemed straightforward, but the truth is, super reforms bring more complexity and higher costs.
Currently, these TSB thresholds apply:
- $300,000 TSB for work-test exemption contributions
- $500,000 TSB for catch-up contributions
- $1 million TSB threshold for quarterly transfer balance cap reporting
- $1.4 million, $1.5 million and $1.6 million bring forward non-concessional contribution caps
- $1.6 million TSB threshold for non-concessional, spousal, and co-contributions
- $1.6 million TSB threshold for segregated pension assets
SMSF Association CEO John Maroney says the fact that each super fund member has their own personal TBC to determine how much they can transfer into retirement phase only adds to the confusion. “Not only have these thresholds made life far more difficult for SMSF members trying to understand and use the super system, but for their advisers and administrators. It increases fees for professional services because they need specialised advice to understand the multiple different thresholds that may apply to them,” he says.
Increased appetite for financial advice
The COVID-19 lockdown has caused more of us to seek advice from financial planners. According to new figures released this month by leading researcher Investment Trends, three in four clients have been in touch with financial advisors to discuss the impact of the pandemic.
In 49% of these cases, financial planners initiated the first contact, while 24% of clients reached out first. The report, which surveyed 4,501 Australian adults during July 2020, shows one in six currently use intra-fund advice services offered by their main super fund, and 37% of those who don’t, say they would like to.
Senior analyst at Investment Trends King Loong Choi says many members rely on their super fund for help across a range of topics, most often seeking information about voluntary contributions, switching investment options and retirement planning.
As long as lockdowns persist, she says, all planners must take the opportunity to engage more closely with their clients. “Against a backdrop of economic uncertainty and volatile markets, a record number of non-advised Australians realise they need professional financial advice,” says Choi. “Among these, the pandemic has been a major catalyst, with 44% saying the COVID-19 situation had increased their likelihood of seeking advice.”
- Financial advice through super funds: What’s on offer?
- Free financial advice: Yes, it does exist
- Find an Australian independent financial adviser
- Finding a good financial adviser and making financial advice work for you
- How much does financial advice cost?
- What is the value of financial advice when it comes to your retirement?
- 5-step guide to the different types of financial advice on offer
- 7-point guide to what happens when you meet a financial adviser
- Financial coaching: What is it and why may you need it?
- 8 warning signs that you’re with a bad financial adviser
- Financial advice: What are the risks and benefits?
- Super advice: How to find a suitable financial adviser
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