The head of the super fund servicing retail employees has warned that the sector will not be able to invest in nation-building infrastructure and deliver good returns for their members if governments continue to allow early withdrawals by members.
Rest’s chief executive, Vicki Doyle, said drawdowns allowed as part of the coronavirus relief package from the treasurer, Josh Frydenberg, were “critically needed” but that if they became a permanent feature of the superannuation system, funds such as hers would not be able to continue making long-term investments.
She said the $53bn Rest was easily able to meet a flood of redemptions under the early release scheme, in part because it had unusually high levels of cash on hand before the coronavirus pandemic as insurance against risks including Brexit and Australia’s high household debt levels.
The early drawdown scheme allows fund members to withdraw up to $10,000 before 30 June and another $10,000 after that date.
Rest has so far paid out $1bn to more than 153,000 members. Doyle said that requests were declining and the fund would easily be able to pay out the second wave of redemptions after the end of the financial year.
Australian superannuation funds, especially ones in the union-and-employer-controlled industry super sector, beef up their returns by tipping money into long-term investments, such as infrastructure projects, that pay higher returns than shares or cash.
However, such investments are typically more difficult and time-consuming to sell than shares, fuelling fears that allowing drawdowns would cause a liquidity crisis among super funds.
“If I and the superannuation sector had to keep planning for drawdowns of such significant cash, then I’d have to shorten my time horizon for investing and hold even more cash,” Doyle said.
“If the superannuation sector was to continue to have these mass drawdown aspects … in some ways we’d look more like a bank.
“So if we take a broad view of focusing on the recovery of Australia, banks can play their role and the superannuation sector can play a very significant role of trying to generate returns for members – who may now have smaller balances, by the way – but also of being a long-term investor.”
Doyle said total super savings looked after by Rest shrunk from $58bn to $53bn as a result of the coronavirus-inspired sharemarket meltdown, but the fund had money ready to invest in projects right now.
“We are already planning to invest another $500m in agriculture that we had flagged pre-Covid and we are still going to continue on with that,” she said.
“And we would be interested in other investments. We’re currently receiving proposals into our investment committee even today around various infrastructure proposals, but I would like to see more of that.”
Rest is not the only industry fund itching to invest – construction industry fund Cbus has at least $2.5bn ready to go once restrictions are lifted.
Doyle said: “I would like to see policy settings around superannuation remain stable so that we can continue to play a role as a long-term investor.”
