Hello everyone.
I’m really grateful to be able to join you today despite the extraordinary circumstances we find ourselves in.
I would like to thank the organisers and their team for so quickly finding a way to ensure this important summit could proceed.
Keeping our lines of communication open is vital when things are moving so quickly.
As the Prime Minister has said, we’re a strong nation, we’re a strong people, and in the months ahead, we’re going to find out just how strong we are.
Every single part of the economy, every single Australian, will have a role to play in building our bridge to recovery.
It’s terrific to see the steps so many parts of the financial services industry have already taken in response to these unprecedented challenges.
But as Warren Buffett famously noted, it’s only when the tide goes out that you learn who has been swimming naked. And today I want to talk to you about the perils of skinny dipping.
A few short weeks ago we were celebrating Australians’ superannuation savings cracking the $3 trillion dollar ceiling: roughly double the ASX and around 150 per cent of Australia’s GDP.
Yet now, Australia and the world face a health crisis that has led to an extraordinary economic shock.
One which calls for extraordinary measures, in every sector.
This is a time where cooperation between the private and public sectors is key.
The Government has established the National COVID-19 Coordination Commission to mobilise networks and unlock resources behind a whole-of-economy effort.
No one doubts that health sector is certainly doing its bit. The banking sector has really stepped up to demonstrate its commitment to Team Australia. The defence force is managing quarantine checks. Even my local brewer has even turned to the task of making hand sanitiser!
Governments too have adjusted their thinking, their actions and their attitudes. The fiscal discipline this government has practiced is now paying dividends – and thank heavens – because the rainy day we prayed would never come has arrived.
Many of the policy responses have already been discussed today – PAYG support, tax relief, investment incentives and supplementing the social security safety net – are all being rolled out. And there’s more to come.
The government’s aim is clear, to save lives and livelihoods, to keep Australians in jobs, keep Australian businesses in business, to cushion the blow for as many as we can, and to build a bridge to the other side of this crisis.
Most importantly, the public are doing their bit.
We’re all staying home, self-isolating, practicing social distancing, video conferencing, home schooling. Making do in situations that aren’t ideal and that require an adjustment in behaviour and attitude.
When we are all asked to play our part for the greater good, no part of society or the economy is a sacred cow.
This includes the superannuation sector.
As part of the second tranche of support for those affected by the Coronavirus, the government announced it would allow temporary early access to a limited amount of their superannuation savings: $10,000 in this financial year and a further $10,000 from July until September 2020.
We have not taken this decision lightly.
But we believe that – for those significantly financially affected by the Coronavirus – accessing some of their superannuation today may outweigh the benefits of locking up those savings until retirement.
The government will waive any tax obligations.
And as far as administration goes, it will be as simple as possible, using existing mechanisms:
- Applications are to the ATO via MyGov website
- The ATO will verify the applicant, assess the application, record the bank account details, and make a decision
- The ATO will then direct the nominated fund to release the requested amount to the bank account specified by the member
- AUSTRAC has confirmed that superfunds can rely on the ATO’s customer verification
- The member does not need to contact the super fund AT ALL in the process
Allow me to take this opportunity to thank the fund administrators who have engaged with my office the ATO and Treasury over recent days to help us make the process as efficient as possible. And efficient is exactly what it is. This was real teamwork.
And this is just one policy of so many. This type of coordinated effort is happening all over the economy and throughout government. Everyone is leaning in to the challenge. Indulge me for a moment and allow me to acknowledge the hard work and long hours of my team, those in the Treasurer’s office and particularly the team at Treasury – if you think about it, we’ve basically delivered two Budgets in two weeks.
When we emerge out the other side of this crisis, the Australian people will remember who stepped up, and who checked out.
There is no doubt we will recover, but I think we all know that this country will never be the same again, and every industry in Australia will change after this.
Superannuation will not be immune to this change.
Right now, the Government’s ask of the $3 trillion super industry is that it responds to those verified requests from the ATO and releases funds to its members in a timely manner.
I don’t think that sounds unreasonable.
Neither do most Australians, who have met the news that they can access their own savings for this unforeseen crisis with relief.
Many funds from all super sectors have read the tea leaves, sensed the public mood and responded with, ‘how can we help?’
As many of you have heard me say before, I’ve worked in this industry, in different sectors of this industry – retail investments, industry super, financial advice for most of my professional career. Along that journey I’ve had the privilege to get to know so many of the passionate professionals that have shaped superannuation over the years – sharp minds and good hearts.
And it is many of these people who have reached out to me in these past weeks, pledged their help to our collective cause: to temporarily put aside ideology and ideals, and to help those most in need at their hour of need, to allow people to access their own money, their savings, as soon as possible, when it is needed most. To those professionals I say: thank you.
Of course the corollary of this is, like everyone else who has worked in the industry, over the years I’ve developed a keen radar for self-interest dressed in sanctimony.
While many – so many – have stepped up and shown why they are industry leaders, even in these extraordinary times, inevitably, some circle the wagons, bestow upon themselves some sort of industry immunity, claim a free-pass from this crisis on the basis of a higher calling, or persistently raise problems, rather than seek solutions.
Often those who seek to thwart collective efforts are doing so to hide individual failings.
To return to the Warren Buffet aphorism, as the tide is retreating, we’re seeing too little speedo and too much skin.
If a fund has run a fairweather-only investment strategy, they will be exposed. There is a reason that diversification is important – it reduces risk. Risk isn’t a just financial concept, it’s a reality, and we’re living it.
But as always in a crisis, we learn more than we anticipated. We’re now seeing that, for super funds, it’s not just investments that need diversification. It’s their member base too.
I have spoken many times about the justifiable pride we all feel in the Australian superannuation system – its operations, its opportunities and its origins. But what we are seeing now is a structural weakness in our super system that’s been long hiding in plain sight.
Failure to diversify fund membership can be as dangerous as failure to diversify investments.
This is something for trustees to think about as the industry may be on the cusp of a round of mergers.
It has always seemed logical in mergers for trustees to seek opportunities to merge with like brethren. But we need to ask ourselves whether such proposals which essentially double down on the same set of risks are wise. Are such mergers – motivated more by super’s industrial relations legacy than by modern-day concepts of prudent risk management – to the benefit of their members?
I welcome the strong support for the government’s early release initiative from funds like SunSuper, Australian Super and MLC. But of course, these are the funds that quickly realised they are capable of responding in a timely manner – because their membership reflects a broad cross-section of the economy, not a single industry.
Those funds whose members are congregated in sectors hardest hit by virus, particularly smaller funds, unless they have risk-managed their investments for a crisis, may find this period very uncomfortable.
However, I want to say today, that discomfort is no excuse to not release members’ money – their own money – in a time of need.
Any fund who refuses a member access to their money after an ATO determination is essentially admitting that their investment governance was cavalier or their systems inadequate.
I can’t imagine a bigger signal to members, to the media and to regulators.
And when everyone is making sacrifices, patience is short for those who can’t pull their weight.
If the coming period reveals a super fund has been managed in a way that would prevent members accessing their money promptly, APRA’s directions powers – especially sections 131D and 133 of the SIS Act, updated last year by the Parliament – gives APRA new teeth that may well be tested.
Yes, this situation is unprecedented, a word that has been well used, and appropriately so.
But was it unforeseeable?
Or has our 28 year old super system – buoyed by disengagement and carried forward by inertia – been lulled into a false sense of security and complacency?
For those who say, ‘We can’t meet government expectations…don’t blame us, this was entirely unforeseeable,’ my answer is: I don’t agree. Rather, what we have here is a collective failure of imagination.
Some have said that the unforeseeable part is the mass cash-in requests - whether that be requests for early release, or switching to cash investment strategies.
To that my answer is: Oh really?
It will be interesting to find out at some stage in the future just how many boards and risk committees before this crisis ran scenario planning for a pandemic?
But more importantly, Australians could already access their super after 26 weeks on income support payments. And the Prime Minister has consistently been saying that whatever we do in response to this pandemic, we have to be able to sustain for a long time. He has consistently told us this could last more than six months.
So even under the old rules, it was entirely foreseeable that there could be a situation where a fund could face a combination of:
- large numbers of members seeking access to funds as a result of financial hardship;
- In conjunction with a spike in unemployment and corresponding falls in contributions; and
- a bear market;
And if all those things happen at once, a surge in switching to cash is inevitable.
Now yes, I hear many funds saying that that may be so, but they never thought the rules around early access to super in the face of hardship could change. Again, I think we have to admit this, too, is a collective failure of imagination.
Could it really be the case that, at a time of potentially the greatest economic shock in a century, the super industry would expect to remain ring fenced and immune?
You only need to look outside the Australian experience.
Around the world, in times of acute economic stress, there’s been numerous examples where retirement income savings pools have been expected to step up and play a part.
The GFC was not so long ago – did our collective failure of imagination blinker us to the learnings of other countries in times of crisis?
And finally, for those who claim that early release of superannuation poses a threat to the orderly functioning of the stock market, let me put your minds at ease with some very basic calculations.
Let’s take the estimate of around $27 billion of funds that might be taken out via early release.
Early release money is less than one per cent of a circa $3 trillion superannuation system.
And APRA has advised government that the early release of superannuation amounts up to $20,000 would not have a significant impact on the industry overall.
Let’s dig a little deeper.
Superannuation funds typically have around a quarter of their assets in Aussie equities. A quarter of $27 billion – let’s say, $7 billion in funds – may well come out of the Australian stock market to meet early release (and that’s assuming funds don’t choose to preference bond sales for a while).
$7 billion is less than one half of one per cent of the ASX’s market capitalisation.
That’s the equivalent of a single day’s turnover of the ASX.
And this is all before we take into account ongoing cash inflows from SG contributions from those who remain in work.
Let me be abundantly clear; there is no valid excuse for a fund to delay early release of a member’s funds. Your members, the media and the regulators will be looking for those who are swimming naked when the tide recedes.
Building engagement
So is there anything good for our super industry that can be taken out of this experience.
I genuinely believe so.
Advisers and funds will of course make the valid point that when you take an early release of super there is a trade-off being made between money now and money in the future. But the flipside to this is that deciding whether or not to take the money now out of super is a choice that only an engaged person can make.
In a sector plagued by disengagement, this will bring a new focus.
It’s their retirement savings.
It’s their money.
Over the coming weeks, I’ll be working with ASIC, to do everything we can to make sure that issue-specific advice is available and affordable, so that financial advisers and super funds can help people who ask, ‘Should I withdraw my $10,000?’
And as we speak, ASIC is working on new features in the MoneySmart website to help.
To those in the advice sector, let me say this. We know that affordable, reliable, professional financial advice can be critical at many of life’s great milestones, and never more so than right now. I will be working with you to ensure the smooth running of an industry that was already in flux. Now there is a real chance for the professional advice industry to demonstrate its true value.
Perhaps the era of member disengagement is over. This is a good thing.
While there is limited time to speak today, there are so many other aspects of my portfolio that require attention at this time.
To the fintech industry: it’s my priority that we keep your ecosystem running, and that we come out of this period ready to bounce back.
Competition, access to finance and innovative solutions are just as important now as ever. A number of announcements already made will support your businesses.
Please rest assured that work on these issues continue. My door is open – or at least my phone and teleconference lines open – to all who wish to contribute to those discussions.
And with everything going on, it’s easy to forget that the Government already had a packed reform agenda for 2020 in financial services.
Of course, some of that will have to change.
We are currently working through how the priorities have shifted, given the other urgent demands on Treasury and the regulators, and the prospect Parliament may be quite disrupted this year.
But as in every sector, as we adjust, as we innovate, as we reimagine – we ask for patience.
This is a very challenging time for us all.
Extraordinary times require extraordinary measures and we face a global challenge like we have never faced before. But by working together, we will get to the other side and we will bounce back stronger.
The Government’s actions, as well as your own, provide hope and support for millions of Australians at a time when they need it most.
We know that there is more to do and we will continue to do what it takes.
Thank you again to the AFR for hosting this important forum – I look forward to addressing you next year in person. I wish you well for the remainder of the Summit and through the challenging weeks and months ahead.
In the meantime, stay well and stay safe.